Forex Flash: Political uncertainty could unravel Italian economy – Deutsche Bank

Yesterday, Bersani called on all his opponents, including Berlusconi, to back a five-point program of political reform, easing of austerity and job promotion. Angelino Alfano, of Berlusconi's centre-right People of Liberty party, indicated that weeks of tough negotiations lie ahead before a new government takes office, possibly in late March.

According to Macro Strategy Analysts J. Reid and C. Tan at Deutsche Bank, “What worries us is that the weeks and possibly months of uncertainty that lay ahead may stifle any confidence within the Italian economy and hold back the recovery. This would be very unwelcome news but it's a realistic concern if no solid Government can be formed.”

On that note, S&P and Moody's released statements overnight commenting that while there is no change in Italy's BBB+/Baa2 credit ratings just yet, the elections have underscored that risks to carrying out structural and fiscal reforms are substantial.