Back To Normal

15/03/2013 at 5:37 pm

While we haven’t seen anything like the Arab Spring this year, it has not exactly been politically quiet. The recent general election in Italy, for instance, got a lot of international attention, and the new parliament has opened amid wrangling and apparent deadlock. But the market reaction so far has been very muted.

When Greece held inconclusive elections last May, European stock markets continued a decline powered by renewed concerns over the eurozone crisis, with the FTSE 100 and the Stoxx 50 both ending the month about 5% lower. Since the Italian elections this year, however, both indices are up. The Milan bourse itself is flat. Ten year government bond rates in Italy have risen by all of 14bp, and the spread to Germany remains tighter on the year to date. (Last May the increase in the 10-year yield was 50bp.)

After all, electoral chaos in southern Europe is nothing new. Since the end of the military junta in Greece in 1974 there have been twelve prime ministers (not counting two caretaker-leaders), and fifteen elections during the course of which the vote counting system was changed four times. The story in Portugal is almost identical: thirteen elections and prime ministers since the establishment of constitutional government in 1976. Italy has held eleven general elections since 1974, only one more than the UK – but it has had more than double the number of prime ministers over the same period (seventeen versus seven), a reflection of the volatility of its fragmented coalition politics.

This is not to disparage the significance of politics in these countries. Much of the interest in events in Italy centres on the popularity of the anti-establishment Five Star Movement, which won over 25% of the vote on the concise though administratively opaque campaign motto, “F- Off”. It remains to be seen how exactly the message will be interpreted by the political class. And of course the situation could have been worse. Unlike the Greeks, the Italians gave their gaggle of far right parties less than 1% of the vote, and the communist alliance did little better. (Neither won any seats.)

In Portugal, the politics leading to the 2011 election were pivotal in the country’s request for a bailout – something which it might otherwise have chosen to avoid. Likewise, the defeat of Spain’s Jose Zapatero later that year presaged austerity measures and budgetary embarrassment for his successor reminiscent of the “I’m afraid there is no money” line which confronted the UK’s incoming coalition in 2010.

If the focus on European politics continues to diminish, then, it will be further evidence that the world is returning to normal. Changes in government and electoral emergencies in countries like Italy will once again be taken in people’s stride. After all, just look how little excitement there is over the latest EU summit going on in Brussels today – there is coverage, but it hasn’t made a single British front page. Similarly, it would have been easy to miss Ireland’s successful return to the bond market this week with €5bn of 10-year paper carrying a coupon of 3.9%.

The sovereign debt problems faced by countries in the eurozone and elsewhere are far from solved. But in terms of investor confidence and world sentiment, we should remember the old adage: no news is good news.


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