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Euro Outlook: Italian Political Crisis Monitor - What Happens Next?

Euro Outlook: Italian Political Crisis Monitor - What Happens Next?

2019-08-22 11:00:00
Justin McQueen, Analyst
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Euro Price Analysis and Talking Points:

  • Italian Political Roadmap
  • PM Conte Resigns, President Mattarella Looking for New Government
  • Italian Political Scenario (New Government or New Elections)

See our quarterly EUR forecast to learn what will drive prices throughout Q3!

Italian Political Roadmap

Euro Outlook: Italian Political Crisis Monitor - What Happens Next?

Source: DailyFX

PM Conte Resigns, President Mattarella Looking for New Government

Following the resignation of Italian Prime Minister Conte, President Mattarella has been left with two options. Gather party leaders to gauge the possibility of forming a new coalition government with the purpose of passing the 2020 budget or dissolve parliament and call for a snap election.

The Italian President is seemingly in a rush to find a new Prime Minister with a deadline set for next week given that talks regarding the 2020 budget are due to take place next month. As such, Mattarella will be meeting with the major parties today in order to form a government and avoid a snap election.

Italian President Mattarella’s Schedule

  • Democratic Party (1000BST)
  • Forza Italia (1100BST)
  • League Party (1500BST)
  • Five Star Party (1600BST)

Italian Political Scenario

Technocratic Government: As evidenced by Tuesday’s price action in response to PM Conte’s resignation. A technocratic government would be the most supportive scenario for the Euro and Italian BTPs, provided the coalition is formed of the 5 Star and Democratic Party (PD). However, with the 5 Star party initially stating that they would not form an alliance with the center-left PD party, focus will on any change in rhetoric. (Bullish BTPs and Italian Banks to perform well in this scenario)

Snap Elections: Failure to find a new coalition government would likely see snap elections take place, which in turn would be the worst-case scenario, particularly with snap elections potentially taking place in the Autumn. Alongside this, a Salvini led government would likely be the case given the performance in opinion polls, which has seen support double for the League party since the 2018 general election. As such, risks could spillover into the Eurozone with concerns over the 2020 budget, thus weighing on Italian assets and the Euro. (Bearish EURJPY and EURCHF likely to performance best in this scenario)

Euro Outlook: Italian Political Crisis Monitor - What Happens Next?

Source: DailyFX

FX TRADING RESOURCES:

--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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