Financial analysts are not afraid of the Meloni effect on the markets
No alarm, for now, on the stability of the Italian system. The spread slightly up not alarming, as well as the increase in the yield on ten-year government bonds (to 4.5%): these are dynamics that do not have much to do with the success of the Brothers of Italy. Analysts agree that the real test will be, if anything, the Law of Stability. Which must be drawn by 20 October, to reach the judgment of Brussels by 30 November and therefore be definitively approved by 31 December. Calculations in spans have spoken of 40 billion, but it also depends on how things will go from the point of view of gas and bills.
The analysts’ opinions
David Zahn, Head of European Fixed Income at Franklin Templeton, comments on the Italian elections: “After the victory of the Brothers of Italy party, – he said – it will be interesting to see political proposals and potential deviations from the promised plans while the coalition government is being formed. We expect to see continued volatility of the market in the next 4-6 weeks and we are short on Italian government bonds in our portfolios“.
For Marco Vailati, Head of Research and Investments of Cassa Lombarda, “The results of the elections show a rather large change in the national political framework, but I do not think that this will have a devastating impact on the financial markets, as feared by some. Technical aspects will be more relevant, such as sector share composition and central bank activity on government bonds. This is because the country is firmly inserted in a community context that provides supports but also constraints to follow along the path of development. Therefore, even in the context of national autonomy, permanence in the system, which has not been questioned by the winning coalition, requires and guarantees compliance with certain commitments and certain standards. The presence of a strong and cohesive government, able to act and in compliance with EU commitments, can also be a reason to push the markets in a phase of recovery fueled by funds for recovery and resilience. Only a populist, irresponsible and short-sighted drift, currently not on the horizon, could scare investors, resulting in a relative underperformance of equities and a widening of the spread“.
Curiosity also on the part of the independent rating agency Dbrs: “A right-wing government will not significantly alter Italy’s economic foundations.” The agency, which assigns Italy a BBB rating with a stable outlook, explains that “as expected, the right-wing coalition, made up of Fratelli d’Italia, Lega, Forza Italia and Noi Moderati, has secured a majority in both rooms according to preliminary projections. Barring some initial disagreements between the coalition parties, FdI, which obtained the largest share of votes (26%) led by Meloni, should lead the government while Lega, FI and Noi Moderati they will be junior partners of the coalition “.
“It will be the first time for Brothers of Italy leading a government and there is some degree of uncertainty about the new government’s policies. The new executive is likely to be less reformist and more protectionist than the government Dragons, but we do not foresee – emphasizes Dbrs – a complete derailment of the reform program or a dramatic change in the general fiscal strategy. The likely government led by Meloni should implement policies that do not alter in the economic fundamentals of Italy “.
In the end, Luca Peviani, co-founder and managing director of P&G Sgr, stated that “the real effects on spreads and financial markets will manifest themselves when the orientation on the economic ministries of the future government begins to take shape. We will have to see if the watchwords sovereigns only electoral slogans will be revealed and instead will leave room for understanding the interdependencies that link Italy to international markets and to Europe. A country with a debt like the Italian one pays, to tend, over 20 billion euros more (in terms of debt service) for each percentage point of spread widening. This reality can initiate a vicious circle of uncertainty that generates an increase in the spread which in turn causes greater uncertainty and so on: this dynamic can only be defused by convincing investors – and above all Frankfurt, the first investor in Italian debt and “manager” of the anti-spread shield – that the Government does not aim to undertake unrealistic projects of budget variances and “uncovered” tax cuts, but, on the contrary, that there is a full understanding of the “system” constraints in the country it is inserted. A name of “guarantee” as Minister of Economy is a crucial step “.
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