The Italian election is a crucial risk event. Even though the polls suggest that a centre-left majority in the Lower House is possible, the situation in the Senate is a lot more uncertain.

A hung parliament might push the centre-left and the centre to form at least an informal alliance on certain themes. With former prime minister Mario Monti in the picture, this might give investors a sense of continuity. But one risk is that such a broad coalition looks quite heterogeneous and somewhat unstable.

The next political leaders are likely to maintain sound fiscal policies, with Italy's primary budget surplus expected to rise further. But whether the pace of economic reform will accelerate meaningfully remains to be seen.

(*) Senior economist responsible for Southern Europe - Italy, Spain, Greece and Portugal

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