In Italy, the issue of elections for the President of the Republic and the possible implications on the market front are on the agenda. Algebris’ global credit strategy team speaks on this topic today. “The market oscillates between two possibilities: an election of Mario Draghi as president or a guided election of a high-profile person – remarks Algebris -. The first hypothesis would represent a long-term positive turnaround for Italy, as Draghi would benefit Italy’s governance and reputation for another seven years, instead of just one remaining year of his term as premier. However, this could generate some short-term volatility as the premier post would be vacant, opening up the possibility of early elections. A high-ranking profile would avoid the short-term risk, but could generate uncertainties in the long term, especially since in this case the 2023 elections could be coupled with the tightening of the ECB ”.
If Draghi is elected, Algebris adds, it could lead to a political agreement on a technical “care government” aimed at leading the country to the 2023 elections. “Therefore, we consider the risk of early elections to be relatively low. BTP spread volatility should therefore remain subdued for now, although we could see some 20-30bps of broadening over the next week given tight initial levels and rate direction. ”