It is clear the uncertainty in Italian politics is raising anxiety levels. The rest of Europe is catching that cold too (especially Greece and Spain). What happens next, various scenarios are possible, and market reactions could see the fall of the government. On Saturday, Berlusconi called for the resignation of the ministers of his party (PDL). All five ministers resigned from the cabinet, but three of them implicitly criticised the decision of de facto bringing down the government. The move came in after PM Letta (PD) announced late on Friday that he would ask for a confidence vote early this week. The MPs of the PDL had threatened to resign if the Senate Committee on 4 Oct. decides for Berlusconi’s expulsion from the Senate due to his convictions for tax fraud.

This could bring down the government quickly. A government that has not only failed to push through any significant reform, but has even promoted some counterproductive policies (e.g., cutting property taxes rather than labour taxes).Uncertainty remains unusually high even by Italian standards. The expectation is that the Italian government will fall after a confidence vote on 2 Oct., creating the following scenarios:

1) A new coalition with limited scope or 2) trigger early elections which will likely result in another stalemate.

In any event, polls show that a populist or anti-euro party clearly leads in the opinion polls.

Sincerely, Philip Magnoli – My friends call me Don Filippo- The FX Specialist. 416-362-1300

Ref- Zerohedge.com Tyler Durdun