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Italians Fear Adverse Selection at 17th Parliamentary Election  Join our daily free Newsletter

MENAFN - ecPulse - 23/02/2013

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Italians face a difficult test on Sunday as they are set to choose new leaders for the upcoming challenging phase; the euro areas third-biggest economy suffers the longest recession in two decades and huge load of debt that could push the country back to crisis.  

The 17 th Parliamentary election in the Italian Republic has to determine 630 members of the Chamber of Deputies and 315 elective members for the Senate.  

Many point of views appeared recently over the candidates amid the challenging phase the Italian economy is experiencing.

"I will elect Berlusconi as he promised to refund property tax," one Italian will say, another would prefer Bersani since he is likely to follow the course set by Monti, while many would refrain from participating as they see all candidates are unable to lead a big economy such as Italy.

The Italian economy contracted 0.9% in the fourth quarter to remain in recession since mid-2011 with unemployment at 11.2%; Mario Monti had adopted strong austerity measures to cut debt and restore confidence to markets which could threaten Italy from suffering prolonged years of recession and high unemployment.

The core problem is represented in the challenge of having a winner who has objections on the reforms suggested by European leaders to avoid Italy from leading another crisis; reviving the hazards of the three-year-old debt crisis!

Election’s result is very critical as it will shape the future of Italy and the debt crisis –meaning the bond market- therefore bond yields, shares and the euro exchange rate are expected to be very sensitive to the result.

This month, Italys 10-year yield rose above 4.50 percent for the first time since Dec. 28, Italys benchmark FTSE MIB was Europes worst-performing stock market, falling 3.1 percent on Feb. 21, and the euro dropped from a high of 1.3710 versus the dollar to lows of 1.3160 on political tension and uncertainty of the outcome of the elections.  

A come back of Berlusconi -who grappled Italy into a huge debt of 127% of GDP and other macroeconomic imbalances- along with other extremist parties is raising concerns to Berlin and other European destinations.

The latest polls signaled that Berlusconi is just 4-5 points below the centre-left party which raise his chances of at least be a part of a coalition.

Another challenge the election presents is a weak coalition between parties that have different directions; this would affect decision making at the time taking critical steps is very important to get Italy of out of the current hard situation.

On the other hand, some referred that there could be another election within few months if the electoral law was subject to a reform.    

The best case scenario, which moves in line with the latest polls, is the win with a majority of the centre-left led by Pier Luigi Bersani in the lower house and the formation of a coalition with Monti in the Senate, amid suspicions of a successful coalition between them since they drastically disagree in the school of thoughts!

Probably Bersani is looking for a coalition with Monti to have support from European leaders and to keep confidence in markets as Monti managed to push down Italys borrowing costs since he took charge in Nov., 2011 in addition to the ECBs pledge to lower tensions in market by announcing a new bond-buying program in Sep. last year.  


 






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