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Italy's electoral circus continues, markets unfazed

Democratic party leader Pier Luigi Bersani gives a press conference on March 22, 2013 at the Quirinale presidential palace in Rome.

A philandering  billionaire, a former communist and a stand-up comedian all ran for high office. It may sound the beginning of a bad joke, but in fact it’s what happened in Italy’s recent general election. And the Italian people are not laughing.

The country is trapped in an eternal triangle . The election left the Italian  parliament in a three-way split between Silvio Berlusconi’s center-right party, Pier Luigi Bersani’s center-left party and the Five Star Movement run by the one-time comedian Beppe Grillo. The parties cannot agree to form a coalition. And so more than a month after the poll, Italy remains in limbo without an elected government.

All good democrats deplore this political paralysis, but financial markets are relaxed. The euro has not collapsed; Italian government borrowing costs have actually fallen. Investors seem to relish the stalemate.   

And here’s why: While the elected politicians posture and bicker and fail to reach agreement, the unelected technocrats are still in charge in a caretaker government. These are the people who pulled Italy back from the brink at the end of 2011 and have been delivering the kind of public spending cuts and economic reforms that the markets demand. So the markets are becalmed.

“It’s very important to say to the financial community that the technocrats are still in place and we are still committed to respect all the budgetary limitsm,” says Deputy Minister of Labor and Social Policy, Michel Martone.

Paradoxically, financial markets might be more unsettled if the three warring political parties sank their differences and formed a government. All three parties have criticized the technocrats' program of austerity and reform.

This prompts the question: Is Italy better off without an elected government?

Needless to say, the voters’ answer is a resounding 'no!'

“I think the failure to form a government is a complete disgrace,” says lawyer Elisabetta Girardi. And waiter Alessandro Lepore says, “Grillo, Berlusconi and Bersani are politicians who are useless to Italy.” 

The impasse could come to an end within a few weeks. Fresh elections are likely to be called and it is possible that one of the three parties may win enough votes to form a government. Ironically, that might move the financial crisis into a higher gear.    

About the author

Stephen Beard is the European bureau chief and provides daily coverage of Europe’s business and economic developments for the entire Marketplace portfolio.
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