The recntly concluded Italian 2-day elections revealed that nearly 57% of the Italian vote went to parties that have vowed to rip the EU austerity script. Together they control a majority of senate seats.
The Five Star movement of comedian Beppe Grillo, which won 25% of the vote, has called for a euro referendum and has a return to the lira as one of its manifesto pledges, while ex-premier Silvio Berlusconi has threatened to pull Italy out of the currency bloc unless the EU switches to a reflation strategy.
Even if the centre-left leader, Pier Luigi Bersani, can put together a “grand coalition” with Mr Berlusconi, there is no going back to the hairshirt regime imposed by Mario Monti’s technocrat government at the EU’s behest over the past 15 months.
“A deal with Monti is impossible,” said Mr Berlusconi on Tuesday. “His austerity policies have put the country into a dangerous recessionary spiral, with rising debt and unemployment, and the closure of a thousand firms a day.”
The great fear is that the European Central Bank (ECB) will find it impossible to prop up the Italian bond market under its Outright Monetary Transactions (OMT) scheme if there is no coalition in Rome willing or able to comply with the tough conditions imposed by the EU at Berlin’s behest. Europe’s rescue strategy could start to unravel.
Andrew Roberts, credit chief at RBS, said: “What has happened in these elections is of seismic importance.“The ECB rescue depends on countries doing what they are told. That has now been torn asunder by domestic politics in Italy. “The big risk is that markets will start to doubt the credibility of the ECB’s pledge.” (telegraph.co.uk)