Here's what a Meloni-led administration will mean for bonds, the euro and banks
As if Europe hasn’t got enough on its plate — war in the East, rampant inflation and an energy crisis — now Sunday’s general elections in Italy is poised to deliver a far-right coalition led by Giorgia Meloni, whose Brothers of Italy party has fascist roots, a populist fiscal policy and deep Euro-skepticism.
Generally, the greater the angst about Rome’s fiscal position — it has a debt-to-GDP ratio of about 150%, double that of Berlin — the greater the yield differential, as investors demand more income for taking on the perceived risk of holding Italian paper. “Much is riding on this. Besides the credibility of the new government on fiscal matters, any clear departure from the EU’s guidelines would raise fears that Italy could lose out on €69 billion in grants and €123 billion in loans from the NextGeneration EU recovery package, and may also no longer be eligible for European Central Bank support,” Pizzoli says.
Geopolitical tensions and the euro. Meloni has stated that she will stick not only to former prime minister Mario Draghi’s fiscal policies but also to his foreign policy stance, particularly with regard to the West’s support for Ukraine against Russia. “So far this year, the performance of the euro has been totally dominated by more pressing factors than the Italian elections, such as the monetary policy and the energy crisis in Europe, which have pushed the single currency below the parity levels against the dollar,” Cingari writes.
Italian banks. The economic background is not great for domestically focused Italian companies, particularly in the financial sector.
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