Waiting for Mattarella

There will be a great deal of posturing and
declarations, but the following yesterday’s election, the next step is in
President Mattarella’s hands.
  He is to nominate a candidate for prime
minister who has the best chances to win a confidence vote in both chambers of
parliament.  Formal consultations may not begin until next

These elections for the first under the new
law, which seemed to put more emphasis on coalitions than parties, to
facilitate stronger governments.
However, many are still emphasizing
parties as the key unit.  This difference is important.  If it is in
terms of political parties, the Five Star Movement(M5S) received the most votes
with about 32.4%.  However, the center-right coalition had 37.3%. 

The M5S had rejected coalitions in the
campaign and the immediate aftermath, but many seem to discount this. 

M5S leader Di Maio says that his party now “feel the responsibility to
form a government” and that he was “open to discussion with all
political actors.” On paper, the North League’s 17.6% of the vote and M5S
32.4% could potentially secure a major of seats.  Northern League leader
Salvini ruled out forming such a coalition with the M5S.  

That said, the most likely scenario is a
center-right and a center-left coalition. 
However, the center-left
(PD) did miserably, garnering a little less than 19% of the vote.   Renzi,
former Prime Minister and currently the head of the PD may be the first
casualty.   He has scheduled a press conference for 5 pm local time
(11:00 ET) and may resign.   

Berlucsoni looks to be a casualty as
His party, Forza Italia, came in fourth with about 14% of the
vote.  The first implication is that Berlusconi cannot claim to lead the
center-right coalition.  He cannot hold office and the poor electoral
showing may mark the end of an era in which dominated Italian political scene
after the “Clean Hands” investigation decimate the older political
elite and parties.  

Salvini, who clearly wants to be Prime
Minister, is touting a more hostile line toward the EU and euro and the
Salvini had tempered some of his rhetoric during the campaign,
but warned today that EMU was bound to come to an event, and Italy needs to be
prepared.  M5S leader Di Maio has softened his anti-EU and anti-euro

It will take some time to sort things out in
Italy, but this seems to be par for the course in Europe. 
investors conclude that the Italian election results do challenge the euro
and/or EU, the euro will likely be driven by other issues, including this
week’s ECB meeting. The Italian election may be in the same bucket of factors
as the Catalonia’s election in Spain.   It has been several months
since the election.  The regional government is not in place.  Yet,
it is seen as local challenge and not one that is an important driver of
Spanish assets on a day-to-day basis. 

The near-term cap for the euro is seen near
$1.2355, which is the 50% retracement of the decline from the year’s high set
on February 16 near $1.2555.
  Initial support is seen near $1.2260, which
is 50% of the bounce from the March 1 low near $1.2155.  


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