With markets already alarmed at the prospect of another self-inflicted political wound – the U.S. government budget shutdown – Italian assets could take a hammering today with investors finally waking up to the potential chaos looming.
Bond yields did climb a little last week but not to the extent that suggests the worst-case scenario is anything like priced in. Italian BTP futures have plunged by well over a full point at the open and the euro is on the skids. Let’s hope everyone still believes in the European Central Bank’s euro zone backstop.
President Giorgio Napolitano – the 88-year-old on whom hopes for political stability again rest – and Prime Minister Enrico Letto are intent on avoiding early elections by forming a new coalition.
It’s possible that moderate members of Berlusconi’s centre-right grouping could be wooable – even the five ministers have issued statements expressing reservations or even outright disagreement with the decision – and there’s the unpredictable, anti-establishment Five Star movement to court as well. But time is tight.