The political situation in Italy has deteriorated yesterday evening, when Salvini decided to sink the current Government as polls are giving him a consensus of 35% and the possibility of getting a majority by joining forces with the right-wing party of Fratelli d’italia.
In this scenario, the spread is rebounding, as markets see growing uncertainty with a new budget due in around two months and a huge chance of an increase of VAT from 22 to 25%. Although Salvini would avoid this at all cost, Italy would need to find around 23billion in order to avoid the VAT hike).
Photo by Robert Metz.
The government crisis is full-blown but not yet official as the Parliament will have to vote against the Prime Minister in order to formalise the government fall. Later, President Mattarella, will have to seek a majority for the government in Parliament once again, if the Parliament voted against the government again, Italy could go to early elections. The Italian equity index is losing almost 2%, with the largest Banks losing between 3% and 5% (Banco Bpm and Ubi are losing 5%, Unicredit and Intesa almost 4%), due to uncertainty and rising spreads, while the new budget is due soon and another battle with EU seems likely.
