Stefan Koopman, Market Economist at Rabobank, explains that if current polls were to be a good predictor of actual voting intentions – which they are not if the electoral system changes! – Italy runs the risk of producing a hung parliament.

Key Quotes

“Renzi’s PD and Grillo’s M5S are neck-and-neck at around 30% of the votes, whereas Lega Nord and Berlusconi’s Forza Italia (both at roughly 12.5%) are the only other two parties making the threshold. A possible outcome would be a marriage of convenience between PD an FI, which both parties aren’t too comfortable with, and even then a workable majority is uncertain. Same old, same old?”

“Even though nothing has materially changed yet (i.e. elections will take place before May 2018 anyway, there has been lots of chatter about proportional representation and Grillo is getting five stars in the polls for a while now) all it took was Italy’s politicians talking about elections to remind investors of Europe’s Achilles’ heel. You could only imagine what will happen if the ECB simultaneously decides to start tapering its asset purchase programme.”