Italian General Election Results: What’s Next?
Duff & Phelps’ International Equity portfolio team discusses the political and investment implications of Italy’s general election held on March 4, 2018 following dissolution of the country’s parliament in December 2017. No political party garnered an outright majority, resulting in a hung parliament.
Italy’s general election results featured a better-than-expected showing by two parties: the populist Five Star Movement party and the extreme right, anti-immigration Northern League party. In its platform, Five Star has muted its anti-euro currency agenda, but the party will probably stand in the way of a more pro-unified-EU Italian government, including a banking union.
Uncertainty (or “incertezza” perhaps more fittingly) is the word of the day given the prospect of a new round of elections. The world will be watching to see if these seemingly disparate parties can find a path to cobble together a coalition along with the investor preferred, center right parties (Democratic Party and Forza Italia). Under normal circumstances, uncertainty is not something investors take kindly to, and this could be the calm before the storm.
We are relatively sanguine about these events, given our investment positioning and the current ebullient European economy. With no party in control, all parties will need to compromise to create a working coalition, forcing a moderation in views and resulting in the highest probability of maintaining the status quo for now. The medium-term problem is that the eurosceptic parties now have more than 50% of the vote, making EU cohesion more challenging to achieve. Still, the probability of “Italexit” or an Italian sovereign default is low, with little risk of contagion to the rest of Europe. The Italian population still supports the euro currency. Also, Five Star has stated that it wants to reduce government debt to GDP by 40 percentage points over the next 10 years.
In summary, we believe the Italian political situation needs to be monitored closely, but we do not feel the need to react to it as investors. We do not currently own any Italian equities, as none meet our fundamental selection criteria at this time.
Opinions represented are subject to change and should not be considered investment advice. Forward-looking statements are necessarily speculative in nature. It can be expected that some or all of the assumptions or beliefs underlying the forward-looking statements will not materialize or will vary significantly from actual results or outcomes.