Danske Bank strategists offer their opinion on the Italian political turmoil, with the fate of Prime Minister Mario Draghi in limbo.
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“Italy has plunged into a new government crisis after three of the four main parties of Mario Draghi’s unity government (Five Star Movement, Liga and Forza Italia) announced that they would not support him in a vote of confidence.”
“During the last 18 months, Draghi has served as a rare unifying force in Italian politics and has overseen the implementation of important structural reforms (for example, in the justice system) that are a prerequisite for receiving funds from the NGEU.”
“If an alternative parliamentary majority cannot be formed (which currently seems unlikely), the president Mattarella would probably have to call early elections (possibly held on September 25), just as the crucial fall budget season kicks off.”
“With the exception of the Brothers of Italy, early elections are not in the interest of most parties and, as a result of recent constitutional changes, the Lower and Upper House seats will be reduced by a third after the next elections.”
“Based on current polls, a centre-right coalition led by Brothers of Italy could be the most likely outcome in our opinionthough a lot could still change once the election campaign gets under way.”
Source: Fx Street
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