Forex Flash: Political quagmire abates in Italy – Deutsche Bank

FXstreet.com (Barcelona) - Perhaps the most significant news of note this weekend was the re-election of Giorgo Napolitano as President of Italy. Napolitano becomes the first Italian president to be given a second seven-year term after reluctantly accepting a plea from the Democrat Party along with caretaker PM Mario Monti and Silvio Berlusconi to stand again.

“Ultimately we think that markets will react positively, even if Napolitano reflection is a symbol of the fragmentation within the Italian political system. On the positive side, the market should be relieved that the risk of elections in the summer should be avoided and that finally a new government can be formed.” suggests Macro Strategy Analysts J. Reid and C. Tan at Deutsche Bank.

Indeed, they see Napolitano's re-election as an implicit commitment by the center-left, center-right and Monti's Civic Alliance to support the formation of a grand-coalition government sponsored by Napolitano. On the negative side, the Presidential election process sends a message of political fragmentation.