Across the Pond Thursday

Center-left leader Pier Luigi Bersani places his vote for Italy’s Presidential election in a very official looking basket, Thursday. Source: Getty Images.

Arrivederci, King George

Italy’s Parliament failed to reach a two-thirds majority required to elect a new president in two rounds of voting on Thursday. Current President Giorgio Napolitano’s seven-year term ends in May, and Italy remains mired in a stalemate after February’s parliamentary elections failed to produce a government. By law, Napolitano cannot call new elections in the last six months of his term, thus, the normally (relatively) meaningless presidential election (outside of the ability to call new elections or appoint a technocratic government, as Napolitano did, the President’s role is basically ceremonial) is critical to unlocking the political morass.

In first-round balloting, Franco Marini, supported by center-left leader Pier Luigi Bersani, won 521 of the 1,007 total votes, falling short of the 672 votes needed. Second-round voting drew 432 blank and invalid votes (several ballots were cast for a TV showgirl, a fictional sitcom character and former Prime Minister Silvio Berlusconi’s ex-wife), thus nullifying the entire round. The third round is now scheduled for Friday morning, with the more important fourth round later the same day. In the fourth round (should Parliament fail to reach accord in the third), the majority needed drops to 51%, or just 504 votes. However, no single party or coalition currently has enough votes to elect a president (even with a simple majority), so voting rounds may continue for some time. Historically, although Napolitano was elected in the fourth round in 2006, it took 16 rounds for Oscar Luigi Scalfaro to be elected as Italy’s ninth president in 1992.

In our view, resolution of the presidential election should provide some additional insight into the level of cooperation between the major parties, how soon new parliamentary elections will be called and the likelihood a government can be formed after that. If a new president is elected handily, that likely suggests parties have bridged some gaps and may be able to cooperate enough to pass election reforms, and new elections may result in a parliament capable of forming a government. However, should a president get elected by only a small margin, that likely signals election reforms are unlikely to be passed and new parliamentary elections might yield the same result as February—extending Italy’s political stalemate.

Of course, should it take some time for Italy to form a government, volatility is a possibility (always is). But the opposite is also true. After all, just last year Greece went through a similarly contentious election as Italy’s February vote, a likely contributor to equity market volatility then. But Italy’s deadlocked election result had little impact on global markets or Italian bonds—markets seem accustomed to eurozone politics being a bit of a quagmire. And even if there is some renewed volatility, it likely takes considerable time for elevated debt yields to become unsustainable. What’s more, as volatility increases, it likely motivates Italian politicians to reach compromise. As with all things eurozone the last few years, politicians and officials have proven willing to do whatever’s necessary to avoid the worst case scenario—even if only at the last possible minute. Nevertheless, this remains an issue worth watching.

Deutschland hat es genehmigt (has approved), Cyprus!

German Chancellor Angela Merkel’s ruling coalition managed to push Cyprus’s €10 billion bailout package through Parliament Thursday. Cyprus’s late March bailout was contingent on a radical restructuring of its financial sector and approval by the German, Dutch and Finnish Parliaments (whose constitutions require parliamentary approval of all financial assistance extended to other EU members.)

Although the amount approved by the Bundestag was small compared to others it’s approved recently (Germany’s actually only on the hook for one third of the total), it has been closely watched as Germany holds general elections in September. Many have hypothesized Germany’s ongoing financial bill-footing for Europe’s weaker periphery might weigh on Merkel and her ruling coalition’s popularity. However, the decisiveness of the vote (487 lawmakers voted in favor out of 602 total casting) likely reflects broad support of the still-very-popular Merkel and her party, the Christian Democratic Union. Elections are still a long way off and much could change, but Merkel is off to a very solid start.