EZA 562 - Italy-Politics

21 October 2003

Ruptures within Italian coalition: public spending to run out of control
Italy's four party coalition is about to disintegrate and should do so by around Jan04 if not earlier. Alleanza Nazionale's head Gianfranco Fini is trying to engineer a situation where the AN and the Christian Democrats led by Pierferdinando Casini take the centre ground of the coalition. The aim is to oust the extreme right wing Lega Nord and its head Umberto Bossi and split the Forza Italia vote. Italian Prime Minister Silvio Berlusconi is caught in a dilemma. If he calls a general election now his coalition might not get in. His immunity from prosecution on various criminal charges that are pending would stop once he is no longer Prime Minister.There is an outside chance Berlusconi will seek to oust Carlo Azeglio Ciampi, as President of the Republic. Our discussions indicate that Berlusconi will cave in to Fini and Casini who, in exchange for keeping Berlusconi in power, will demand that Finance Minister Giulio Tremonti be fired and public spending at least temporarily will go unchecked. Italy will clearly breach the Stability & Growth Pact deficit ratios and be downgraded by the rating agencies.

SummaryAsset Conclusions: Likely dismissal of Tremonti and heightened political risk as coalition disintegrates are deeply negative for all Italian asset classes.

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© Graham Bishop