Re-election of President Giorgio Napolitano may be more important for Italy than appointment of Enrico Letta as PM

29th April 2013

The re-election of Italy’s President could be a more important event than the appointment of a new Prime Minister argues Gilles Guibout, European equity portfolio manager at AXA Investment Managers.

The fund manager says that Italy may even be moving closer to a presidential system.

“Arguably more important than the appointment of Enrico Letta as the new Italian Prime Minister, is the re-election of 87 year old Giorgio Napolitano for a second presidential term. This was the real surprise of last week. Reluctantly accepting this position and agreeing to serve a second term has given Giorgio Napolitano a new status and great authority as President. This could be a major turning point towards a more presidential system.”

He suggests that the Government may last longer than expected due to fears among politicians about the Five Star Movement led by Beppe Grillo.

“These events show how the situation in which the country finds itself in is complex, but have eventually led to the appointment of a coalition government tasked with carrying out specific structural reforms including a change to Italy’s much criticised electoral laws. Everyone is still shocked by the degree of success achieved by the anti-establishment Five Star Movement led by Beppe Grillo which is now the main opposition party,” he says.

“Fear of this alternative may mean that the new government has a longer life expectancy than you would guess from the many observers who are already predicting new elections in the near future.Such a scenario would bring some stability and may potentially lead to a normalisation of the risk premium, allowing the Italian stock market to appreciate.”


14 thoughts on “Re-election of President Giorgio Napolitano may be more important for Italy than appointment of Enrico Letta as PM”

  1. Laughing Gnome says:

    Hi Shaun. A question rather than an assertion this time from me.

    Why after around 30yrs of running a substantial trade deficit, how is GBP worth anything at all? As you point out – as the US supposedly tapers QE, GBP gets stronger against the dollar!?*

    Could this be the case? Perhaps – their is a considerable foreign demand for safe GBP assets such as Gilts? If this is what maintains sterlings sterlings strength then might a reduced supply due to a balanced budget lead to sterling bombing? A complete inversion of the orthodox view I know – but then in economics so many real world phenomena seem to turn out like that.

    1. Anonymous says:

      Hi the Laughing Gnome

      Firstly we run a services surplus which the UK ONS currently estimates at £7.2 billion per month which fills a fair bit of the deficit but still leaves us with a persistent negative current account balance. Also at times the capital account has helped..

      Also the UK Pound has been heading lower over time. The Bank of England’s trade weighted index which I quote averaged 115.03 in 1980 which had fallen to 81.46 last year. So over time the pound has fallen.

      I suspect there is some truth in your argument but I think that foreign buyers have wanted other UK assets in recent times such as houses and in Pfizers case Astra Zeneca rather than UK Gilts.

      1. Laughing Gnome says:

        Thanks Shaun. I will need to inform self of the trade weighted index and the “capital account”. Yes, I see foreign demand for UK stocks might be far more significant than that for Gilts.

  2. Forbin says:

    Hello Shaun,

    Depends on what you mean by “right” I guess .

    We’d all like to buy cheap and sell expensive

    the forex traders need to make a profit

    if you have large regions with the same currency then disparity can lead to poverty in local areas ( USA or USE or even China , Russia or India) – Also goes to the heart of the Scottish indi debate…

    as for where we are , well its a certainty that all the others devalued so we’re back again :-)


    1. Anonymous says:

      Hi Forbin

      Yes there is an external currency and an internal one illustrated by Germany in the Euro area or London in the UK. The price of having the same currency can be high.

      Meanwhile in better news corn prices fell again today US $4.70 now but it has not filtered down to toffee popcorn yet.

  3. Anonymous says:

    Hi Shaun
    Surely the problem is hardest in places like Russia or the Ukraine at the moment. How would you set about deciding the “right” exchange rate for them in what are so uncertain times?

    1. Anonymous says:

      Hi KimJosephine

      Yes I agree. Right now the situation is so uncertain particularly in the Ukraine it is hard to even have a vague stab at it.

  4. Anonymous says:

    Hi Shaun,

    Food prices – I don’t see them falling. Bulgarian supermarkets are typically 20% more expensive than Germany and England due to VAT on basic foodstuffs.

    Home grown food is very common. Hence Bulgaria has many markets selling home produced food, food sold from home or from vans on the roadside. I guess very little VAT is collected from these small traders. My favorite is the apricots – to make real apricot jam.

    1. Pavlaki says:

      This is also very common in Greece, Italy and Portugal and the produce is better quality and much cheaper than supermarkets. Long may they continue!

  5. Anonymous says:

    Great column, Shaun. At the time of the global financial crisis, the National Bank of Ukraine was committed to keeping the hryvnia within a narrow exchange rate band against the US dollar, of all currencies.

    Apparently the Ukrainians looked all over space and time to see which country and regime had the best monetary policy and they decided they
    wanted to be just like Argentina in the 1990s. A huge housing bubble burst when the financial crisis hit. An exchange rate target essentially made it difficult or impossible for the NBU to raise interest rates to dampen it. In some ways the situation was similar to the period of exchange rate monetarism from February 1987 to March 1988 under Nigel Lawson, when the Chancellor of the Exchequer concentrated on shadowing the Deutschmark. Interest rates were too low and housing prices got out of control.

    The head of the central bank council at the time of this debacle was Petro Poroshenko, the president-elect of Ukraine, and a member of his
    council was the current PM, Arseniy Yatsenyuk. Andrew Baldwin

    1. Anonymous says:

      Running up to 2008, the US housing boom ran out of control, with stupidly low base rates and a president claiming “deficits don’t matter”.

      Spain, Ireland, Cyprus and Bulgaria also had substantial house booms. In hindsight, coupling to the dollar and copying the USA was a bad choice. But the alternative of allowing the hryvnia to strengthen might make Ukrainian exports uncompetitive and also cause problems

      1. Anonymous says:

        Yes, ExpatInBG, and the list doesn’t stop there. Just to add in a few transition countries, all of the Baltic states had housing bubbles and so did Montenegro. I would be interested in knowing your perceptions of the Bulgarian bubble. Was it also caused partly by a central bank following a monetary policy geared to an exchange rate?

        If the NBU had been satisfied with its monetary policy, it wouldn’t have moved to switch to an inflation targeting regime, so I think that is pretty much an admission that it did things wrong. Since I left that comment I discovered a 2008 paper by two Ukrainian economists, Olena Bilan and Maxym Kryshko, on the NBU’s monetary policy. Its econometrics are a little over my head, and the English resembles that used by Tina Fey in her bravura performance as a gulag commandant in “Muppets Most Wanted”. However, it does have some interesting stuff on just what a different economic environment the NSB operated in, an economy chock-a-block with regulated prices, capital controls, the whole ball of wax.

        Andrew Baldwin

  6. theyenguy says:

    You write, As you can see Mario Draghi is mulling the consequences of the rise of the Euro. Since the nadir of July 2012 it has risen by around 8.5% on a trade-weighted basis and it is some 3.3% above the level at which it was introduced. The disinflationary effect has been reinforced by the fact that the Euro has appreciated more against the US Dollar which is the currency in which commodities are invariably valued. Accordingly we find ourselves in a situation where what is, by the standards of such things, a modest rise of (8.5%) in a currency which has its central bank mulling all sorts of policy responses.

    God purposed for a debt based money system, and provided the Banker Regime to establish currencies and credit to achieve His purposes. It was by God’s design from eternity past, and ongoing fulfillment of His will that the central bank leaders’ provision of currencies and credit, provided seigniorage, that is moneyness, for investment gain, and very little stimulus for economic recovery since the Great Recession, as the investor was ordained from eternity past to be the centerpiece of economic activity.

    God provided the Euro, FXE, as a platform for speculative leveraged investment purposes; its rise over the Yen, FXY, seen in the EURJPY rising established great investment gain in debt trade investing and in currency carry trade investing.

    Thus there was no fluke, error, or failure of policy, whereby employment and household debt relief were given little regard by the world central bank leaders.

    It was on Tuesday, May 13, 2014, destruction of fiat wealth commenced in the Eurozone on the failure of credit, specifically the failure of trust in the world central banks to continue to stimulate investment gains as well as global growth. With the trade lower in Italy’s Sovereign Debt, ITLY, and Italy, EWI, and the European Financials, EUFN, the world has passed through an inflection point: the world has pivoted from the age of credit into the age of debt servitude. The world began to enter the final phase of the business cycle known as Kondratieff Winter.

    Sovereign monies, that is Major World Currencies, DBV, such as the Euro, FXE, are now trading lower. This loss of seigniorage communicates a dwindling of sovereign authority of the world’s democracies.

    Then on Friday May 16, 2014, an unwinding of the Euro Yen Currency Carry Trade, that is EURJPY in nation investment in Ireland, EIRL, Greece, GREK, Italy, EWI, and Eurozone Stocks, EZU, as well as a derisking out of the European Financials Debt Trade, EUFN, introduced a see saw destruction of fiat wealth, and the age of debt servitude, and terminated all liberal things worthy of trust, such as a university education, home buying, and fiat wealth investing.

    Out of soon coming global economic chaos, people will come to trust in new sovereign authority and monetary and economic policies of regional economic governance and schemes of debt servitude to establish regional security, stability, and sustainability, where the debt serf is the centerpiece of economic activity, and ever increasing poverty is the way of economic life.

    Fiat money, defined as the combination of Major World Currencies, DBV, and Emerging Market Currencies, CEW, together with Aggregate Credit, AGG, is literally dying. Out of soon coming Financial Apocalypse, seen in bible prophecy of Revelation 13:3-4, diktat money, defined as the mandates of regional fascist leaders for regional security, stability, and security, will underwrite all economic activity.

  7. Anonymous says:

    Hi Pavlaki

    Thanks for the update on Greek inflation which made me recheck the official data. In the year to April the Food and Beverages section saw a fall from 120.34 to 118.23 or an annual inflation rate of -1.8%. The nearest we have to a taverna’s index (hotels cafe and restaurants) fell from 120.14 to 117.41 or -2.3% inflation. So I am afraid that these moves have not so far been picked up by the official numbers.

    The tax rises seem to have affected the sin consumption section (alcohol and tobacco) as it rose by 0.9% over the past year and the index is at 153.46 where 2005=100.

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