Brian Jacobsen

Italian elections: Time for a do-over

AdvantageVoice® Blog—4-22-13
Brian Jacobsen, Ph.D., CFA, CFP®, Chief Portfolio Strategist

Italy’s elections at the end of February left a hung parliament. The lower house was controlled by the center-left party, headed by Pier Luigi Bersani, while the upper house was fractured, with the center-right party, headed by Silvio Berlusconi, holding the most seats. Parliament elects the president, but the fractious parliament was unable to make progress, settling on reelecting the outgoing President Giorgio Napolitano. Most likely, President Napolitano will reappoint Mario Monti as a temporary prime minister until new elections are held anytime between July and October.

While the Greeks had a similar experience with their 2012 elections—having to go to the polls twice—the Italian experience could be quite different. Italy does not immediately need any cash from international lenders, so there is less pressure to form a parliament that will negotiate with creditors. The most recent polls show that popular opinion may result in another hung parliament, but this time the center-left and center-right parties might swap spots.

One thing of consequence from this process is that Bersani stepped down as head of the center-left party. The unity of the center-left party is crumbling, which could lead to increased popular support for both the center-right party and the Five Star Movement. The Five Star Movement is squarely in the anti-euro camp, and the center-right wants to ease up on the austerity and reforms that have been implemented.

No matter how I look at it, it looks like people could discuss an Italeave scenario, where Italy leaves the eurozone. Personally, I don’t think Italy will leave the eurozone yet, but it is likely to demand a slowdown to reforms that are being asked for by the International Monetary Fund, the European Central Bank, and the European Commission. This increases risks to investing in the eurozone across the board.

The views expressed are as of 4-22-13 and are those of Chief Portfolio Strategist Brian Jacobsen, Ph.D., CFA, CFP®, and Wells Fargo Funds Management, LLC. The information and statistics in this report have been obtained from sources we believe to be reliable but are not guaranteed by us to be accurate or complete. Any and all earnings, projections, and estimates assume certain conditions and industry developments, which are subject to change. The opinions stated are those of the author and are not intended to be used as investment advice. The views and any forward-looking statements are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any mutual fund. Wells Fargo Funds Management, LLC, disclaims any obligation to publicly update or revise any views expressed or forward-looking statements.


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