Risk of snap elections in Italy has risen substantially, Barclays says

Italian political uncertainty is again high on investors' list of worries amid reports that the country's leading parties will press for snap elections, which might see non-establishment options win the day.

On Sunday, the head of Italy's centre-left Democratic Party (PD), Matteo Renzi, told Il Messaggero that elections in the autumn would reduce uncertainty in financial markets.

That came close on the heels of a report during the previous weekend which had indicated that Silvio Berlusconi's Forza Italia would back PD's plans for early elections.

In exchange, Renzi would throw his weight behind Berlusconi's proposal for Italy to adopt an election system along German lines, based on purely proportional representation.

Key to Renzi's plans, according to some observers, was the fact that the PD had recovered in the polls and he was worried that the negotiations and approval of the 2018 budget might prove unpopular, undermining voter support.

Budget season ran from 20 October to 21 December and the current legislature was then scheduled to end in March 2018.

The decision to allow snap elections, or not, was Italian president Sergio Mattarella's to make.

"Against this backdrop, we expect President Mattarella to keep the bar for snap elections high.‎ We believe that, in the president’s view, reform of the voting system should minimize the risks of a hung parliament or of any government coalition that is too big and heterogeneous to meet upcoming budget season deadline and be effective from the standpoint of implementing reforms," analysts at Barclays Research said.

Nevertheless, Barclays admitted that the probability of snap elections in Italy had risen "substantially" and that under the voting system which had reportedly been agreed there was a "non-negligible" risk that anti-establishment parties might win.

As of 1153 BST the yield on the benchmark 10-year Italian government bond was higher by two basis points to 2.20%, following an eight point jump the day before.

Similarly-dated French and Spanish debt on the other hand were not negatively impacted by the news.