Italy election: no major surprise from the polls, maybe positive for markets

Election outcome and political scenario: The centre-right coalition won Italy’s general election on 25 September, with approximately 44% of votes. Overall, we believe that Italy’s general election offered no major surprises and at the margin, the news flow is positive, as the centre-right collation will not have a two-thirds parliamentary majority, which would have allowed it to vote for constitutional amendments.

At the same time, it has enough seats to form a stable government. Italy could have a new government in early November at the earliest, with the new prime minister likely to be Brothers of Italy’s leader Giorgia Meloni. However, the Brothers of Italy will need its allies to ensure a solid parliamentary majority and this could a be viewed positively by markets. In the meantime, Mario Draghi’s government will address some of the work on the budget law. When the new government is sworn in, it may choose to make adjustments to public finance figures and try to negotiate a revision to the national recovery and resilience plan (NRRP). It is also likely to stick to EU fiscal targets and avoid clashes with EU institutions on economic policy. Campaign promises are likely to be amended, but some fiscal loosening may be attempted.

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