A caretaker government led by Mario Monti or a government of national unity are the most suitable for lowering the spread between the German BPT and Bund, while a PDL, Lega, UDC alliance or the elections in January can give our government bonds, but in a context of continuing uncertainty. Silvio Berlusconi's permanence in Palazzo Chigi on the other hand risks only increasing the differential further.
It is not a political death sentence, but a technical and financial evaluation, what many analysts are doing in these hours to decide the behavior to adopt on the markets. In a document reserved for collaborators and customers, Pictet, a leading player in private banking, examines the various Italian perspectives to translate them into numbers for the markets. An obligatory operation in a phase in which Italy has a decisive weight on the stock exchanges of the whole world.
A caretaker government or a government of national unity are, on paper, the most welcome to investors, because the purpose of these executives is to secure the country from a financial point of view, in harmony with the European authorities who monitor the rigor of the Italian budget.
In this scenario, the market could soon expect a series of measures aimed at lowering the dangerous debt-to-GDP ratio, to bring it back to 100% rather quickly. Interventions ranging from privatizations to assets, to something similar to the US Tarp, a dam aimed at supporting the primary bpt market, as an alternative to the European stability fund if this does not take off.
What really matters, in the current political and financial context, is the credibility of government action, which enjoys the support of other European countries and the ECB. This makes the difference between the various hypotheses examined. In these hours, however, the premier, like a player opposed to the powers that be from all over the world, is leading a new battle for survival: leading the government to approve the measures requested by Europe, and then resigning and not standing again in the elections to be held here a few months.
A new rabbit out of the hat, a hypothesis that Pictet could not imagine, but it remains to be seen how the markets will judge it.
