Posted on Feb 3, 2019 2021 at 13:55Updated Feb 3, 2019 2021 at 14:33
Will the savior of the euro get Italy out of the political crisis? The markets seem to believe it. While Mario Draghi has just agreed to form a new government, the Milan Stock Exchange already welcomed, in the morning, the probable arrival of the former president of the European Central Bank at the helm of the peninsula, increasing by more than 2 , 60%. A performance driven by the rebound of Italian banks. At midday, Unicredit had gained 5.36% and Intesa 5.63%.
The bond market has shown the same enthusiasm. The yield on Italian 10-year debt fell ten basis points in the morning, to 0.55%, close to their record low of 0.50% set earlier this year. This could be the biggest daily decline recorded by the Italian 10-year since June 2020. The spread (the rate differential) against German debt, a key indicator of risk, has reached its lowest level since 2016.
Investors hope the former central banker can bring political stability after the collapse of the ruling coalition and use European Union funds to help the Italian economy recover from the health crisis.
The one who said he was “ready for anything” to save the euro zone in 2012 should succeed Giuseppe Conte, unable to unite his coalition in the midst of an economic and health crisis. “We know he is pro-EU and in favor of the European project, in which the markets will feel comfortable”, Imogen Bachra, European rates strategist at NatWest Markets, told Bloomberg.
Last month, the coalition government collapsed over disagreements over how to spend EU funds. Mario Draghi will have complete freedom as to the composition of the next Italian government, according to an official quoted by Bloomberg.
Not yet assured of sufficient support
However, there can be no assurance that Mario Draghi will be able to muster sufficient support. The largest party in Parliament, the populist 5-Star Movement, has already ruled out supporting it.
The last few years have been marked by turmoil in the Italian markets, rocked by the country’s high debt and the presence of Eurosceptic parties in the government. Bond yields soared during the coronavirus crisis last year, before the ECB intervened with unprecedented asset purchases as part of its pandemic program.