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Forex Flash: Five Star could greatly influence economic outlook for Italy - Nomura

FXstreet.com (Barcelona) - Richard Koo, Chief Economist at the Nomura Research Institute comments that some argued that Five Star’s election success came only because many voters, anticipating an easy win by the left, cast a protest vote for Mr. Grillo’s party.

However, he feels that it is difficult to imagine the Italian people, “who afterall all own a majority of their government´s debt”, electing a party whose policy proposals include a partial renouncement of the nation's debt. Nevertheless, if Five Star’s election success prompts it to adopt more realistic policy proposals, it could still prove a major threat to existing parties.

Koo recalls speaking at an economic conference in Italy recently, at a high profile event which was attended by many leading politicians. He recalls that when he asked whether any existing parties were willing to forge an alliance with Five Star, and not one gave a real answer, underlining the complexities of the situation. He writes, “Under these conditions, I think the most favorable outcome for market stability would involve the formation of a coalition government around the left to continue the reforms or put the country on “autopilot” so that there is no backtracking on reforms. But there is still the possibility of another election, and if Five Star makes additional gains as voters punish existing parties for being unable to address the problems Italy faces, I suspect the turmoil will continue. In any event, the events in Italy will warrant close monitoring along with the situation in Cyprus.”

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