The largest winner was the Five Star Movement (M5S), an anti-establishment Eurosceptic party. Provisional results show M5S gaining 31.6% of the vote. The League garnered 18.2% of the vote, and Silvio Berlusconi’s Forza Italia gaining 13.8%, while the Democratic Party performing much worse than expected and only securing 18.7%.
M5S was formed by Beppe Grillo, an Italian comedian; although the EU won’t be having anything to laugh about should any deal of a coalition involve both the Five Star movement and The League, the latter being a far right group alarmed at the levels of immigration, and not surprisingly Eurosceptic . A more likely coalition would be between the M5S and the Democratic Party. Any deal or coalition is probably a few weeks away so it is useless to speculate, however, with the surge in support for Anti-EU parties it could be a nervous wait for Brussels.
Italy is a net contributor to the EU budget, so should Italy decide to also go it alone then things will become very difficult for the EU. Overall it contributes more to the EU budget than the UK, currently around 14% compared to the UK which stands at 11%. Italy does benefit from a higher spend of the EU budget within its own borders, so we are a bigger net contributor, but nevertheless a combined 25% of the budget would vanish should Italy decide to join the UK. This could be the start of a domino effect across the rest of the Eurozone which could see other countries think about going it alone.
However, despite this uncertainty in Italy and the possibility that it may spread throughout the rest of Europe both the CAC and DAX are in positive territory, and even the Borsa Italiana at the time of writing is only slightly down. This is because a hung parliament was widely expected by markets, and politics in Italy is always viewed as relatively unstable – very few governments ever see out full terms anyway! Nothing sums up Italian politics more than a man renowned for his Bunga bunga parties and being convicted for corruption now potentially being the king maker in any future Italian government.
It should certainly prove interesting seeing how talks between the main Italian parties play out, with the outcome less certain than the upcoming Russian election on the 18 March whereby Vladimir Putin will be elected for his fourth term as the ‘democratically’ elected president of Russia.
Italy’s vote may well have wider reaching ramifications when it comes to negotiating our own complex exit from the European Union. If Italy does form a government which has the potential to take Italy out of the EU, then like any organisation in its death throes, sudden violent movements can be expected from the EU, and these would be aimed firmly at the UK in the hope that any deal detrimental to ourselves will be viewed by Italy as a road that they won’t wish to go down.
Donald Trump has declared war! Thankfully not a militarised war in the traditional sense, but a trade war; however, like any type of war there will be no real winner, only varying levels of loss. Donald Trump announced last week that he would place a tariff of 25% on steel and a 10% tariff on aluminium.
Almost immediately the EU threatened to retaliate with Jean-Claude Junker announcing that the EU would retaliate by slapping tariffs on products produced in strong Republican states such as bourbon, Levi jeans and Harley-Davidsons. In response Donald Trump said that should the EU make such a move then he would place a higher tariff on cars produced within the EU. This move should not be seen as unexpected because it was part of Donald Trump’s campaign promise of America first.
However, like any war if you don’t look at the history books then you are destined to repeat mistakes from the past, and we only need to look back as far as the 2002 when George W. Bush placed temporary tariffs of 8-30% on imported steel. It has since been concluded that the costs outweighed their benefits in terms of aggregate GDP and employment. Furthermore, the World Trade Organisation (WTO) came out against these tariffs and ruled that they were a violation of Americas WTO tariff commitments. The WTO imposed more than $2 billion in sanctions, the largest penalty ever imposed by the WTO against a member state.
Donald Trump’s dislike and disregard for the WTO is already well documented, however, the US is currently enjoying strong GDP and employment, so it’s difficult to see his justification in imposing these tariffs. If anything a trade war is going to create more inflationary pressures as its makes goods more expensive for Americans. American steel will be more expensive than the cheaper Chinese steel that has been flooding the market. If this plays out in full then this could lead to increasing interest rates to combat raising inflation, which in turn would push the yield on the 10-year government bond yield above the key 3% mark. This would have ramifications for the stock market as a sharp fall would be expected as investors flee into bonds due to rising returns and less risk.
Between the 20 March 2002 and the 4 December 2003, the duration of time in which the US last imposed sanctions on steel, both the Dow Jones and the S&P 500 fell 18.52% and 21.38%, respectfully: