Macro Digest: Italien Election 2018 – A new mess or more of the same?

Italien Election 2018 – A new mess or more of the same?

The opinion polls stopped two weeks ago with consensus that a Five-Star movement led government is less than 10% likely by Monday – This seems too low for me and certainly also for Deutsche Bank Asset Management who is their "An Italian Mudle" writes: "…..the Five-star movement may only be a normal policy error away from being able to block the formation of any realistic, broadly centrist, Pro-European government".

DBAM rightly point out that even in a world of bad pollster the Italians are worse than anyone else – You only need to look back at the 2016 European Election special and the last elections in 2006, 2008 and 2013 to see how poor the predictions where.With a new more "uniform" election law the two chambers: Camera del Duputati (630 members) and Camera del Senato (315 members) should look a lot more a like than in the past. In a strange election law young voters can vote from the age of 18 to the lower house but not to the Upper House before turning 25, and as I expect the young voters in Italy but also in all other elections to make the difference, this could be of importance.DBAM estimates that the margin of error in Italians polls are 5% for the main parties and upward of 10% for the Five-Start movement. In other words by Monday morning Italy could once again be tested in its ability to create a new constructive political environment which would take Italy into 21^st century. 

This is the 18^th legislative since 1948 – I guess the old Einstein quote: "keep repeating the same experiment expecting different result makes you an idiot" comes to mind!

The Italian economy is one of the few countires not to have reached its 2008 GDP level( it's still 6% below), Youth unemployment remains stubbornly high(Bank of Italy recently offered 30 junior positions and got 80.000 applications!!), bad banks debt at 15% non-performing loans and a debt of more than 120% of GDP.

All the parties promises to spend more money while inflation in February reached a 14-month low. This despite an almost embarrassing support from the ECB Chairman Draghi, who in my eyes is building all of ECB's policies on extending help to Italy. Where Italy goes, ECB goes seems to be the motto – this modus operandi is running out of time as Bundebank is about to take charge of ECB in 2019 – this is Italy's final chance to get the house in order under low interest rates and infinite support from monetary policy. Unfortunately this final round of support will most like end up being used for another round of Berlousconi, who single handed has kept Italy from reform over the last twenty years. I sometime thing Mr. B is Mr. Trump's big hero.!

There is four consensus outcomes for the election:

1.        The market friendly – Partito Democratico (Renzi) + Forza Italia (Berlousconi) (polls: 37%)

2.        Forza + Northern League + FDI (Fascist Party) (35%)

3.        Five-Star movement alliance (28% 5*)

4.        Hung Parliament – and a new election

Latest polls: https://en.wikipedia.org/wiki/Opinion_polling_for_the_Italian_general_election,_2018#2018

·          The polls open @ 7 a.m and close @ 23.00 CET

·          Exit polls will be available by 23.01

·          Result could be called around 2-3 A.M

My call:

I think the voter turnout will be extremely low – my Italian friends tells me the voting papers is extremely difficult to understand and hence staying home when nothing ever changes is very high!

A low turn-out will generally work best for parties able to "activate" voters and here I share DBAM call that Five-Star Movement is likely to do better than polls and so is Northern Leauge who under Matteo Salvini have become a real political movement with alliances internationally from Nigel Farage over Le Pen to Donald Trump.

The two winners: Five Star + Northern League

IF right then things gets interesting as the Centre Right Alliance have decided that whichever party gets the most votes will get PM-ship… ie. My call is the new Italian PM will be Signor Salvini!

Market reaction:

Market will most likely get centre right government alliance but with a Northern League PM – NOT – what the market is looking for and the Five Star Movement will be main opposition preparing to take over in the next 24 months!

Let's hope the Italians can live up to their proverb: "A chi vuole, non mancano modi"

 

Med venlig hilsen  |  Best regards
Steen Jakobsen  |  Chief Investment Officer

 

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