Brussels, 02/04/2013 (Agence Europe) - A rise in the “spread” of the German Bund and a rise in the rates of interest of the Italian sovereign debt. That could be the short term sanction of markets given the uncertainty created over continuing reforms begun by the Monti government, as attempts to form a political government are getting nowhere (see EUROPE 10817).
Last Thursday, the centre-left leader, Pierluigi Bersani, had renounced forming the new government due to the irreconcilable positions taken by the various parties (see EUROPE 10817). Aware of the threat involved, the president of the Italian republic, Giorgio Napolitano, entrusted two groups of wise men - one on social economic matters and the other on institutional matters - composed of well-known figures from a variety of backgrounds, to summarise the priorities of the different political forces in order to restore dialogue between them and develop government proposals. According to the head of state, who proceeded to the first consultations with both groups on Tuesday morning, the first results of this mission are expected in eight to ten days' time, and at any rate before the end of his term of office, on 15 April.
The “truce” set in place over the past few months between the markets and Italy due to the safeguards provided by the Monti government could continue for another few days or weeks. In recent days, Rome has managed to place 10-year equity at rates of below 5% and the spread between the bonds issued by the Italian Treasury and the German Bunds has remained contained after all (at 350 base points), despite the announcement of failed consultation with Bersani and, successively, with Giorgio Napolitano himself.
Nonetheless, although no solution (allowing one to predict bringing the political situation out of deadlock or consensus on continued budgetary discipline and reforms aimed at rekindling growth) was found after the mission with the two groups of wise men, it is more than likely that the rates and the spread will surge, with all the consequences that this could bring at national level and in the eurozone. This comes at a time when tension is heightened due to the measures adopted for rescuing Cyprus and by the firmness shown by the German government just a few months from national parliamentary elections in September. It also comes at a time when the European Commission confirms that no additional time will be granted to Italy for maintaining its deficit at a level sustainably below 3% of GDP, in order to exit the excessive deficit procedure (the aim being budgetary balance in 2014). A clear signal should therefore be given by Italy's political forces in the very near future. (FG/transl.jl)