Yesterday decision by the Senate Committee in charge of Berlusconi’s exclusion from Parliament to hold the final vote by secret ballots is making more likely a split in the PdL/Forza between pro/anti government, as a last-minute-under-cover pro-Berlusconi vote is becoming impossible. A split would considerably reduce Letta’s majority in Parliament and raise the likelihood of new elections with the current electoral law, a scenario that I labelled as “crash scenario“, since it would likely produce hung Parliament with no possible majority. And that would not bode well for italian solvency. My calculations imply a rise in the “Crash probability” from 45,5 to 49% (left axis below). Financial markets, with a bit of a lag, are taking notice, and yesterday’s Bund-BTP 10 years spread (right axis) almost reached to 250 basis points.
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Paolo Manasse
Professor of Economics
Economics Department, University of Bologna
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