CafeBabel on Italy

I've just noticed that Cafe Babel had an issue devoted to Italy just before the elections. Lots of material which is still interesting and relevant though. Better late than never!

Tensions In The Prodi Camp

The FT this morning draws attention to the ongoing jockeying for position within the Prodi coalition. Centre of most of the recent attention has been rivalry between Massimo D’Alema and Fausto Bertinotti for the position of speaker of the lower house. The FT also quotes uncritically the statement that "Mr Prodi’s opposers are predicting the government will collapse", which is something which may well happen, but the views of his opponents are hardly testimony one way or another, since, at the end of the day, they would be saying that wouldn't they.

Theoretically more interesting perhaps was the reference to the Populari-Udeur: "Clemente Mastella, leader of the centrist Udeur party, said he would offer only “external support” in parliament to Mr Prodi’s government". The FT suggest that this implies that the Udeur will be holding Prodi to ransom, but it could be that this could be read the other way and that their willingness to offer 'external support' may be what makes possible hard reform choices (the appetite for these of course is still a very open question) in the face of threats from Bertinotti or elsewhere. At the end of the day Udeur is relatively small beer (it only got 1.4% of the vote) and despite the fact it has what may appear to be three crucial seats in the 'close call' senate, there are others (like the UDC) who are theoretically in the Berlusconi camp who may well also find it possible to offer 'external support'.

All in all I think caution is called for. We will see what the Prodi government is capable, or not capable, of once it is up and running.

Draghi On Risks To Economic Recovery In Italy

ECB council member Mario Draghi has been drawing attention this weekend to the way in which higher oil prices and a continuing appreciation in the euro risk choking off Italy's ever-fragile economic recovery. I think he has a very good point:

"The Italian economy has rebounded from the fourth quarter of last year" Draghi said today in Washington, forecasting growth to be 1.2 percent this year. "Oil is the primary risk. There's also a risk that the euro will appreciate."

"First quarter growth may have ``slightly'' exceeded the central bank's 0.4 percent forecast expansion from the previous quarter, Bank of Italy Deputy Director General Pierluigi Ciocca said."

The euro has appreciated by 4.1 percent versus the dollar this year, after a decline of 12.6 percent in 2005, while light, sweet crude for June delivery fell back slightly (by 48 cents to US$74.69 a barrel) this morning in Asian electronic trading. My feeling is that the euro is unlikely to appreciate excessively, while oil can certainly continue an upward drift, depending on geo-political factors. However a euro even on or around current levels is no good thing for the Italian economy.

Italian Consumer Confidence Slides

This doesn't really surprise me, especiaññy with all the uncertainty surrounding Italian political life in the wake of the elections.Italian consumer confidence in fact declined to a six-month low:

An index based on a poll of 2,000 households by the Isae Institute fell to 106.1, its lowest level since October, from a revised 109.1 in March. Isae prepared the report in the first two weeks of the month, straddling the April 9-10 election.

The premium, or spread, that investors demand to buy Italy's benchmark 10-year bond rather than the German bond of similar maturity widened to 32 basis points today, the highest in more than 4 years. A basis point is 0.01 percent point.

``Investors and consumers alike are going to be looking for as much clarity on the situation as possible as soon as possible,'' said Antonio Cesarano, an economist at MPS Finance BM in Siena, Italy.

Under Berlusconi, Italy's $1.7 trillion economy slipped into recession twice in two years, and growth is set to lag behind that of the euro region for a fifth year in 2006. Berlusconi managed to draw almost even in the vote by convincing the public that Prodi's plans to stimulate the economy and tame the deficit would require higher taxes.

For those who can read Italian the ISAE survey can be found here.