A pre-electoral report by Mediobanca Securities forecasted the incredible results of Mr Grillo and Mr Berlusconi in the Italian vote of 24-25 February 2013, and indicated it as the best scenario for financial operators worldwide (read the scoop by Il Sole 24 Ore on 18th February 2013). “Paradoxically, the worst case scenario could actually become the best case, in our view. A booming success of the Five Star or a last-minute Berlusconi victory would scare the market sufficiently to put pressure on the spread so to offer Italy the perfect excuse for what we keep seeing as the only viable way out given the non-sustainability of the Country’s high public debt: applying for Draghi’s OMT programme “.
Mediobanca is not alone in such unusual endorsement. Goldman Sachs economis Jim O’Neill finds “exciting” the results of the Italian vote. In his last Viewpoint, he lists three observation. “Firstly, perhaps somewhat oddly, I find the outcome quite exciting because it seems to me for a country who’s GDP has basically not changed since EMU started in 1999, something big needs to change. Maybe this election outcome and the peculiar mass appeal of the Five Star movement could signal the start of something new? Secondly, for the established elite of Italy and, crucially, the other ‘power centres’ of Europe, in particular Berlin and Frankfurt, these results are pretty close to a nightmare. (…) Thirdly and linked to this, in my view, Italy’s real problem is the absence of economic growth, which has caused debt to rise, and not the same problems as some other problematic Euro-zone countries. Italy’s cyclically-adjusted fiscal position is actually in modest surplus (see table below), which is better than virtually all other developed countries. I believe that tightening fiscal policy for the sake of it with a vague aim of debt reduction is not a smart strategy. Italy needs to reform its product and labour markets, boost nationwide productivity and reform. They also need German and ECB support in order to stay in the EMU, and especially now, to stop a potentially fresh escalation of unnecessary increases in bond yields. In Italy, reform doesn’t equate to austerity as their voters have just shown”.
It is hard to discover the real benefits to Italy from the unstable post-electoral situation, although the huge gap is confirmed between real economy and financial markets.