Italy moves quickly to replace Prime Minster Renzi – MUFG

Lee Hardman, Currency Analyst at MUFG, notes that in the main development from the Eurozone over the weekend Italian President Mattarella has asked outgoing Foreign Minister Gentiloni to form a new government.

Key Quotes

“President Mattarella had emphasized that Italy needs a “fully functional government within a short time frame” in order to meet its domestic, European, and global commitments. As there have been no significant defections from the coalition since Prime Minister Renzi resigned, former Foreign Minister Gentiloni should be able to count on a combination of the centre-left Democratic Party and other centrists to stay in power.”

“The leader of the Five Star Movement Luigi Di Maio has called Gentiloni a Renzi “avatar”. It has been reported that he is likely to face pressure to step aside in the first half of next year because former Prime Minister Renzi wants to hold early elections ahead of the next scheduled elections due early in 2018. Former Prime Minister Renzi reportedly plans to call a Democratic Party congress early next year to confirm him as their leader before standing as its candidate in early elections. Holding early elections would reinforce our outlook for a weaker euro in 2017.”

“A caretaker government led by Gentiloni is expected to have a short shelf life. The main priorities will be to harmonise the electoral laws for the lower and upper houses which President Mattarella described as “indispensable” before holding a vote, and addressing urgent problems in the banking sector. It follows the announcement late last week that the ECB has rejected a request from Monte dei Paschi di Siena for extra time to raise private capital.”