Italian Election Results In Political Gridlock

Italian politics are famed for being messy and Sunday’s election was result was no different. As the exit polls continue to roll in, results point to political gridlock and no outright winner for Italy, Europe’s third largest economy. 

In a campaign where discontent over immigration featured as a central focus, voters aligned with anti-establish and far right parties in record numbers, choosing to desert the ruling centre left in a show of anger over mass immigration. 

Exit polls by Rai state television show that centre-right alliance, which includes returning candidate Silvio Berlusconi’s party Forza Italia, are in line to win 33% - 36% of the votes, although they failed to win an outright majority of 40% required. Forza Italia are expected to have won 14% and the same quantity of votes to be apportioned to Lega Norte, a far-right anti-establishment Eurosceptic party.  

The same poll also shows that Italy’s 5 Star anti-establishment party would be the largest single party winning between 29%-32% of the votes. Although they received fewer votes than the centre-right alliance, the party has picked up a strong following in a very short period of time, from their beginnings in 2009. 

Whilst this party doesn’t fall neatly into any political category, it’s anti-establishment stance has fed off general disconnect in Italy. Although it has toned its anti-EU/ euro position in exchange for a more business friendly approach leading towards the election in order to boosts its popularity.  

Finally, Italy’s ruling centre left coalition is expected to fall in third place.  

Initial market reaction: 

The euro initially spiked higher on the market open, hitting a peak of $1.2365 versus the dollar, before quickly paring gains and trading in negative territory, all within the first hour of trading. Meanwhile EUR/GBP followed a similar pattern surrendering the pop higher early on.  

The Italian FTSE MIB futures are trading considerably lower than its European counterparts, pointing to a 0.8% loss on the open at the time of writing. It is not that surprising that there was no decisive conclusion to the elections and that Italy is pointing towards a hung parliament. 

However, the reality that 5 Star may be able to form a coalition with Lega Norte is sending a chill down the markets’ spine. 

 The fact that the FTSE MIB is showing a bigger reaction than the euro suggests that the markets aren’t overly concerned of a Eurosceptic drive, but are initially seeing this as more of a domestic issue. 

 Parliament is not due to meet for the first time until 23rd March, with any formal talks on forming a government not to start until April. This will leave Italy in a political vacuum potentially for some time, which is unlikely to work in favour of the fragile, recovering economy.