Italian risk is poorly priced by financial markets – Natixis

Could the likely victory of far-right parties in Italy’s parliamentary elections on 25 September trigger a crisis in Italian financial markets? In the view of analysts at Natixis, Italy gives more cause for concern than financial markets suggest.

Will Italian financial markets withstand Draghi’s departure?

“The election of a far-right government in Italy would run the risk of Halting the reform process set in motion by Mario Draghi, which is a prerequisite for Italy to receive funds under Next Generation EU; A highly expansionary fiscal policy, making the trajectory of public finances incompatible with public debt sustainability. This would make Italy ineligible for the Transmission Protection Instrument.” 

“If Italy lost eligibility for both Next Generation EU and the TPI, Italian financial markets (government bond market, equity market) would deteriorate considerably from their current level. Perhaps the new government will take on board this risk.”