JPM: Italicum reform investors’ biggest threat

The outcome of Italy’s constitutional review is a bigger threat to markets than elections in France and the Netherlands, said JPM AM’s Mike Bell.

JPM: Italicum reform investors' biggest threat


Judging from the European Commission’s latest statistics about public support for the euro, Bell, a global market strategist at JPM AM, thinks it incredibly unlikely that the elections in France and the Netherlands will go the way of the Brexit vote and the US election.

“In France, 68% of the population support the euro. Interestingly, that is the same percentage as the people in Greece who prefer the single currency. No one is going to be forced out of the euro,” he said. 

“The only way anyone is going to leave the euro is if they chose to. And at the moment, the French don’t want to leave and the Greeks don’t want to leave.

“There has been a lot of talk about a potential referendum for the Dutch, who have an election this year.

“First of all, I think that’s unlikely, but even if there was, 77% of Dutch people want to stay in the euro. And 81% of people in Germany also support the euro. 

Analysts and investors have also expressed apprehension over the outcome of the German federal election, to take place at some point over the second half of the year.

But the country’s support for the single currency is currently one of the highest of all the EU members at 81%.  

Across the pond, Bell does not see the risks under the first year of Trump’s administration as being high at all.

By the three-year mark, however, he thinks the economy could overheat if the Federal Reserve puts up rates faster than their current projections and productivity growth doesn’t pick up.

The most immediate threat over the next 12 months is the Italian Constitutional Court’s review of the country’s current electoral law.

On 24 January, the CC will vote on whether to alter the electoral system and implement the Italicum reforms, backed by former Prime Minister Matteo Renzi.

Bell explained: “As it stands, if you don’t have 50% support, you can still get into government as the controlling power in Italy. There is quite a significant possibility that the electoral law is changed so that it reduces the chance of an anti-euro party getting into power in Italy.”

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