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Italy’s political worries scare investors

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Italian prime minister Mario Monti originally came to power as part of a government of nonpartisan experts who could steer the country out of its fiscal crisis.

But his efforts have lost the critical support of the political party formerly in control — a party still headed by former Italian prime minister Silvio Berlusconi.

Before the planned elections early in 2013, there is likely to be more turbulence and turmoil, says Julia Coronado, chief economist at BNP Paribas.

“I think we’ll end up with a centrist goverment,” she says, “but there’s going to be a lot of bumps along the way.”

Italy — Europe’s 4th largest economy — has been relatively disciplined in terms of the broader situation in Europe, in large part because of Monti’s leadership, points out Coronado.

“That’s been the good news; it’s kept them off the radar screen,” she says. “But that austerity and those reforms come with a lot of social resistance and upheaval, and that’s what we’re seeing play out in the politics.”

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