While all recent polls have continued to support a relatively reassuring central scenario for markets – a victory of the pro-European center-left, probably able to form a government with the support of Mario Monti's centrists – there are several alternative and sub-scenarios that cannot be dismissed. These imply that the Italian elections remain a significant risk event.

Uncertainties are related to at least three issues. First, to the progress of Silvio Berlusconi's center-right group in the polls in recent weeks. Second, to the trend in the protest vote, which has been rising again in the last couple of weeks according to the polls. Third, even if the center-left does manage to reach an agreement with the centrists, it is still unclear if the government would have sufficient seats to form a solid majority, and if the coalition would be sufficiently stable.

In this note, we provide an outline of the main election scenarios and attribute our subjective probabilities to each of them. We briefly review the timetable of the elections and the key program points of the main coalitions. We conclude with an overview of the latest cyclical and fiscal developments in Italy, in light of the very weak Q4 12 GDP results.

Text by Credit Suisse

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