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1 Oct 2013
Not a Letta confidence in Italy
FXstreet.com (London) -Silvio Berlusconi’s attempts to kick the legs out from under the Italian government seem to have worked, with Prime Minister Enrico Letta calling for a vote of confidence on Wednesday. The move comes after Berlusconi’s PDL party removed all five of its ministers from the cabinet, threatening to topple the coalition government.
The two likely outcomes of Letta failing to receive a vote of confidence tomorrow are that Italian President Napolitano could form a coalition with a limited working majority in order to pass the 2014 budget and hold elections late in the first quarter of 2014. Alternatively, if Italy fails to form a new government, it could trigger elections in later this year or early 2014.
The political turmoil comes at Italy is hit by worsening unemployment. Figures announced today show that Italy's seasonally adjusted jobless rate rose to 12.2 percent in August while youth unemployment hit a record high of 40.1 percent.
It is estimated that Italy’s debt-to-GDP will reach 130 percent this year.
So far bond market reaction to the threat of a collapse of the Italian government has been muted, with Italian 10-year yields climbing 0.15bps to 4.58. The FTSE MIB closed down 1.2 percent yesterday, but has climbed 0.9 percent so far on this morning’s trading, however any market reaction was likely tempered by ECB OMT activity.
EUR/USD lacks direction this morning, climbing to USD1.3587 before sliding on poor Eurozone manufacturing numbers.
The pair had been given some upwards momentum running up to the US debt ceiling deadline. But with Italy, the world’s third largest bond market, facing a collapse of government at the same time as Angela Merkel continues protracted negotiations to form a government in Germany, the ugly dog fight between Europe and the US seems to be taking a hold and disrupting any direction for the pair.
The two likely outcomes of Letta failing to receive a vote of confidence tomorrow are that Italian President Napolitano could form a coalition with a limited working majority in order to pass the 2014 budget and hold elections late in the first quarter of 2014. Alternatively, if Italy fails to form a new government, it could trigger elections in later this year or early 2014.
The political turmoil comes at Italy is hit by worsening unemployment. Figures announced today show that Italy's seasonally adjusted jobless rate rose to 12.2 percent in August while youth unemployment hit a record high of 40.1 percent.
It is estimated that Italy’s debt-to-GDP will reach 130 percent this year.
So far bond market reaction to the threat of a collapse of the Italian government has been muted, with Italian 10-year yields climbing 0.15bps to 4.58. The FTSE MIB closed down 1.2 percent yesterday, but has climbed 0.9 percent so far on this morning’s trading, however any market reaction was likely tempered by ECB OMT activity.
EUR/USD lacks direction this morning, climbing to USD1.3587 before sliding on poor Eurozone manufacturing numbers.
The pair had been given some upwards momentum running up to the US debt ceiling deadline. But with Italy, the world’s third largest bond market, facing a collapse of government at the same time as Angela Merkel continues protracted negotiations to form a government in Germany, the ugly dog fight between Europe and the US seems to be taking a hold and disrupting any direction for the pair.