Italians went to the polls on 4th March 2018, delivering an apparent blow to establishment parties.
Yet whilst the Democratic Party has been ousted from government, and Silvio Berlusconi’s Forza Italia has been demoted to junior partner in its right-wing coalition, no individual party or pre-election coalition managed to obtain enough seats to form a majority.
A stalemate looks likely, at least for the time being. Whilst being Eurosceptic and hard on immigration, 5-Star also have other socially liberal policies (e.g. same-sex marriage, environmentalism). This may preclude any tie up with The League, whose leader Matteo Salvini has shown himself to be reluctant to break with the right-wing coalition.
Other combinations, such as a right-wing coalition and Democratic party tie up, or 5-Star and Democratic party tie up seem even less likely. Italian president Sergio Mattarella could yet call new elections; Italy has had scores of post-war governments, and so political instability is nothing new.
We have long considered Italy to be one of the greatest risks to the EU project. It has a gigantic debt pile of 132% of GDP, the 4th highest in the world behind Japan, Greece and Lebanon. Source: Trading Economics. It has an unemployment rate of 11%, and a youth unemployment rate of 31%. Source: Trading Economics.
5-Star leader Luigi di Maio offered a referendum on the Euro currency as recently as December 2017, but retracted the offer only a month later. The party maintains an ambiguous position on the EU, and The League has had plenty of infighting on the issue.
Outlook
Even if a referendum on the single currency were to take place under a populist regime, sentiment in Italy on the Euro has improved in recent years; we do not envisage a return to the Lira any time soon.
Risk Disclaimer: The value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance. This document is not intended as investment advice. Any security mentioned in this commentary is for information purposes only and is not a recommendation to buy. Wealth Matters is 4 Shires opinion led commentary. The contents of this webpage are for general information only and do not constitute investment or financial advice. This is not a recommendation to buy or sell any security or to take any action.
