abrdn: Compromise candidate for Italian presidency positive for financial markets
abrdn: Compromise candidate for Italian presidency positive for financial markets
In Italy, the battle for the presidency has not yet been decided. Below is a commentary by Pietro Baffico, Economist at asset manager abrdn, on the course of the election.
'he Italian presidential election should lead to the appointment of a new head of state before February 3rd, when the 7-year mandate of the incumbent Mattarella expires. Should Prime Minister Draghi become President, or his effectiveness be weakened as a result of the election, the unity government risks fragmenting. This could lead to policy paralysis, and even early elections, which would likely see a further widening in Italian government spreads.
Positive outcomes for markets would be a compromise candidate, or a continuation of Mattarella’s Presidency. However, he has already excluded himself going for a second term. There is only one precedent of a president elected for a second term, with Napolitano being reappointed in 2013 due to a political deadlock.
A Draghi Presidency could mean longer-term political stability, although in the short term would be reassuring only alongside a solid agreement on the unity government. The Presidency is often described as a ceremonial role, involving signing laws, presiding over the Judiciary and the Defence councils.
However, the president gains extensive powers in time of political crisis, can dissolve the chambers, give mandates to form a government, and appoint technical cabinets. Therefore, the office is not without significance given Italy’s political volatility.
Indeed, there is a risk of political divisions rising further this year, with parliamentarians likely to look ahead to the next general elections to be held by June 2023. Should the Presidential election outcome undermine the government coalition, it may become harder for the government to unlock the NextGenEU funds, which would in turn delay the much-needed investment plans.
In a downside scenario, a government collapse may lead to early elections and further political paralysis. Markets will price these uncertainties, with the risk of higher government bond yields.