Brilliant minds across the financial world are still trying to work out the implications of the Italian election result. For the time being, the best answer is that it is probably too soon to tell. After Tuesday’s falls, a little stability has returned to markets, possibly because everyone is still trying to work out what to think. Credit ratings agency Moody’s has warned the election result is negative for Italy — and also negative for other indebted eurozone states. It fears political uncertainty will continue and warns of a “deterioration in the country’s economic prospects or difficulties in implementing reform,” the agency said. For the rest of the eurozone, the result risks “reigniting the euro debt crisis.” Madrid must be looking to Italy with trepidation. If investors decide that Italy is looking risky again and back off from buying its debt, then Spain will be drawn into the firing line too.
Standard & Poor’s stated that Italy’s rating was not immediately affected by the election but I think the key part of that sentence is “not immediately.”
At the same time Herman Van Rompuy’s tweets give an indication of the view from Brussels: “We must respect the outcome of democratic elections in Italy,” his feed noted.
Really? That’s a first. The democratically elected Silvio Berlusconi was forced out when he failed to follow through with austerity after the European Central Bank helped Italy by buying its debt in autumn 2011.