Markets react calmly to right-wing coalition's election win in Italy, for now

Financial markets reacted calmly to the victory by a right-wing coalition in Italian elections at the weekend.

"However, the fact that the country will be governed by a group of historically euro-sceptic parties under an untested leadership raises the risk of a loss of confidence in Italy’s public finances in future," said Capital Economics's Franziska Palmas.

As of 0952 BST, the yield on the benchmark 10-year Italian government bond was climbing by nine basis points to 4.446% and that on similarly-dated Bunds by eight basis points to 2.106%.

Hence, the country's risk premium was little changed.

With roughly 98% of the votes in, the coalition made up of Georgia Meloni's Brothers of Italy, Silvio Berlusconi's Forza Italia and Matteo Salvini's League was seen coming away with 43.93% of the votes.

Helping to assuage markets' concerns were the prospective new Prime Minister's caution when speaking about the outlook for fiscal policy in Italy, the euro area's third-largest economy.

Furthermore, the reported potential candidates to become the next finance minister were all "fairly experienced and pragmatic", and at least at the beginning the new government would likely stick to its new targets and avoid "big clashes" with Brussels, Palmas said.

Looking further ahead on the other hand, any delays on passing structural reforms could endanger access to funds from the European Union, the government might loosen fiscal policy more "significantly" and there was the risk that the coalition might prove unstable due to big underlying differences of opinion.

"More generally, concerns about Italy’s public finances could flare up at any point given the size of the country’s public debt burden," Palmas added.

"This is especially true against the current backdrop of ECB tightening, an imminent recession and pressure for the government to cushion the hit to households and firms from the energy crisis."