Italian Elections and a Possible EU Exit

March 01, 2018 | David Hernandez, CFA, Director of Traditional Manager Search

With Italy’s general election set for March 4th, this week’s chart examines the probability of a Euro break-up. This time last year European political risks were at the forefront of investors’ minds. The Netherlands, France, and Germany all held elections in 2017, with investors particularly concerned about France, where the anti-EU Marine Le Pen was polling well headed into elections. Ultimately, each country avoided anti-euro leadership and markets welcomed the results.

Now Italy will hold elections and there are several parties and political factions jockeying for leadership. Based on polling, experts expect no clear winner thus leading to negotiations to form a coalition government. Despite this uncertainty, the Sentix Euro Break-up Index has fallen to an all time low. Over the last two years the European economy has improved dramatically with a falling unemployment rate and rising consumer and business confidence readings. With a rosier outlook on the horizon, the idea of leaving the Euro has become less appealing to citizens. In fact, support for the EU has reached a 10-year high according to the most recent European Commission study. All of this means that an Italy EU exit event, or as we like to call it, Quitaly, is unlikely to occur.

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