Keep an Eyeonpoliticsin Italy

Every trader in the forex market is following the political drama in Italy, according to NordFX Company To this point, the machinations of Silvio Berlusconi’s People of Freedom (PDL) Party have not rocked the markets, but the possibility of Italy’s government collapsing is a very real one and bears close attention, added the NordFX Company.

In the latest episode of this uniquely Italian drama, President Giorgio Napolitano rebuked Berlusconi, the PDL president, and his party for threatening to resign over the treatment he is receiving in the midst of his conviction and sentencing for tax fraud. The former prime minister was sentenced to four years in prison in August, a ruling that was commuted to a year under house arrest or in community service.

Napolitano blasted the PDL party, suggesting that there were far better ways for the party to express its displeasure over its president’s sentencing. Napolitano would be under the gun if the PDL pulled such a move, needing to either dissolve parliament or to build a new coalition. Either of those choices would have a significant impact on markets, according to NordFX Company.

For Berlusconi’s part, he accuses the judges who found him guilty of attempting a coup d’état. He and several colleagues have threatened to resign if a Senate committee strips him of his seat in the upper house during a special October 4 meeting.

Such fireworks are probably the last distraction that Italy needs as it struggles to overcome two years of recession and a $2.7 trillion public debt. The Milan bourse immediately lowered as a reaction to the latest PDL threat, and borrowing costs rose on 10-year bonds.

Most Italian politicians would prefer to focus on the country’s budget deficit rather than Berlusconi’s travails. The cabinet meets Friday to discuss how to avoid a rise in the nation’s sales tax, another hot issue that will provide enough drama of its own. Italy must trim about 2 billion euros from its budget to bring its deficit under EU limits.

Previous government crises in Italy, such as in 2011 and 2012, had a huge impact on markets, and if the current pot does boil, it will shake the European economic scene once again, said NordFX Company.