Here we go again…we will all hear a lot more about Berlusconi in the three months ahead. As we wrote last week, Bersani’s victory seems to have tipped the scales for the Cavaliere to “get back into the field,” as he puts it. Everyone agrees that his chances of victory are incredibly slim, but there will be a lot of noise and a lot of volatility between now and February-March, when elections will be held.
It is still likely that the elections will not give a clear winner, with the top 60% of the votes split between the left, the Grillo movement, and the PDL. The only new negative, further to Monti’s resignations, is Monti’s relationship with the PDL. We thought that Berlusconi’s strategy would have seen the PDL proposing Monti v 2.0 as a ‘super partes’ solution post inconclusive elections, but now that Monti resigned because of the sharp criticism he got from Alfano, it is not entirely clear that the PDL will want to or be able to make that suggestion come the spring…
In the meantime, markets will be nervous, and any opinion poll that shows the PDL edging up will be seen as a risk to the EU and Draghi’s strategy. In the end, this could make Italian bonds and equities buying opportunities, since Berlusconi cannot win, but there will be plenty of volatility in the middle.