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What You Need to Know About a Crazy Election That Could Roil Markets

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Last year was an eventful one in terms of European elections and fears that a nationalist Trump-style wave of candidates could sweep into office. It never happened.

The right-wing nationalist parties showed strength but were unsuccessful at gaining control of governments in Netherlands, France and Germany. A nationalist became chancellor of Austria in December 2017 but his policies have been mostly moderate.

In short, the worst fears of centrists about a wave of extremists taking over have not been realized. This has fed into recent strength in the euro and has led to a general sense of complacency about European politics. Now a new cloud has appeared on the horizon.

Italy is the third-largest economy in the EU and is facing national elections on March 4, just two weeks away. As this article explains, the situation in Italy is even more complicated and opaque than those that arose last year.

The mainstream Democratic Party, led by Matteo Renzi is running behind some of the more radical parties and has little chance to form a government this round. The left-wing Five Star party is showing strength but appears short of a majority.

Most interesting is a right-wing coalition of several parties led by former Prime Minister Silvio Berlusconi and his Forza Italia party. Some of Berlusconi’s coalition partners are perceived to have neofascist leanings.

Right now the most likely outcome is that no group will form a government and new elections will have to be called in a few months. But the right-wing Berlusconi coalition could squeak through to victory, which would be a shock to markets.

Our long-term position on the euro is still bullish, but there could be some short-term volatility and even a brief decline in the euro as markets sort out the uncertainty.

 

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