The Pound Sterling to Euro exchange rate (GBP/EUR) improved ever so slightly yesterday, by around one-tenth of a cent to 1.1710. Sterling was initially rocked by some underwhelming UK Retail Sales data, but the single currency threw away its advantage during the afternoon as Italian politicians elected to throw away their votes in the Presidential election.
The second vote descended into a farcical affair as large amounts of MP’s wrote “Bianca” (Blank) on their voting slips, and some even went as far as scribbling down the names of football managers and porn stars.
Former Irish national team manager Giovanni Trapattoni, current Manchester City manager Roberto Mancini, fascist leader Benito Mussolini, and male porn star Rocco Siffredi were among the list of ridiculous names read out during the vote count. It is thought that MP’s will wait until the fourth round of voting, when the margin for victory is reduced, to make their voices heard.
Under the current rules, Italian Presidential candidates must receive two-thirds of the votes or more to be elected during the first three rounds of voting. If an outright winner is not produced after three rounds then the margin for victory is reduced from two-thirds to simply a clear majority. For this reason the second and third ballots rarely lead to any clear conclusions.
During the first vote, former trade unionist and ex-Senate speaker Franco Marini received 521 votes, but the favourite fell well short of the 672 needed to claim two-thirds of the electorate.
Both Berlusconi’s centre-right People of Freedom Party, and Pier Luigi Bersani’s centre-left Democratic Party, backed Marini, but it is believed that a victory for the 80-year old could spell trouble for Bersani’s Democratic Party.
Rather like Margaret Thatcher, those on Berlusconi’s side will support him for life, and those that oppose him will do anything to try and bring him down. For this reason, it is possible that Democratic Party voters could switch to Beppe Grillo’s Five Star Movement Party in protest of Bersani’s support for Franco Marini – Silvio Berlusconi’s first-choice for President. A Marini victory would highlight the closeness of the Democratic Party and the People of Freedom Party, and there has been speculation that this could play into the hands of former comic Beppe Grillo and his Five Star Movement.
The situation in Italy has slipped under the radar recently, as markets have turned their attention to the Cypriot bailout package, the soft US employment figures, and the subdued Chinese GDP figures. Italian bond yields rose dramatically in the immediate aftermath of the general election, but they have since fallen back down in reaction to the Bank of Japan’s aggressive monetary easing programme.
The BoJ have started buying up around $68 billion worth of Japanese government bonds each month in an attempt to spur inflation in the Japanese economy. The ambitious stimulus measures have driven Japanese investors out of domestic sovereign debt in search of higher profit margins. The current 4.26% interest rate on Italian 10-year paper has proven very appetizing to yield-hungry investors, and this has propped Italy up whilst the country remains mired in political gridlock.
Beppe Grillo has been quoted as saying:
“We want to destroy everything, but not rebuild with the same old rubble. We have new ideas.”
The Euro exchange rate has not yet suffered too badly from the uncertainty in the Eurozone’s third largest economy but if a party proclaiming a desire to destroy everything, in Beppe Grillo’s Five Star Movement, get into power then we could see the single currency start to slide further against the Pound.
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