31 January 2013

FT: Political gloom surrounds Italy election

The campaign ahead of the general election is becoming increasingly fraught, with a hung parliament a distinct possibility, a banking scandal surrounding Monte dei Paschi di Siena widening, and the forecasts for the Italian economy predicting a contraction of 1 per cent this year.

Investors are shrugging off the risk of political instability, focusing on hopes that the recession will touch bottom over the next six months and that the eurozone debt crisis is past. The prevailing view in Rome reinforces that consensus. There is an expectation that the election will result in a coalition government between Pier Luigi Bersani’s left-leaning Democrats and the new centrist alliance led by Mario Monti, ensuring that the technocrat prime minister’s reform programme will struggle on.

Even within Mr Monti’s camp and among the business community there are fears that the centrists will fail to win a decisive number of seats in parliament, and that a poisonous election campaign will wreck the chances of a happy coalition with Mr Bersani’s Democrats. Investors and European heads of government would love to see Mr Monti as at least finance minister in a future coalition – if not prime minister. But Mr Bersani is seen to favour Enrico Letta, his respected deputy, as finance minister, and it is not clear whether Mr Monti would accept that position anyway.

Mr Monti’s long-term ambitions are unclear even to those close to him. Running Europe from Brussels could hold more attraction for the former EU competition commissioner, but the alternative could be to replace Mr Berlusconi as uncontested leader of Italy’s centre-right. The billionaire media mogul’s survival skills should never be underestimated, but he is 76 years old, dogged by sex and financial scandals, and could be looking at heavy defeat in his last election campaign.

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