It's underway for Italy and Greece

The gods are currently showing mercy to the rulers in Athens and Rome. The regional elections in Emilia-Romagna failed to produce the feared shift to the right. The Social Democratic PD will continue to provide the regional president in the future. Its candidate, Bonaccini, received 51.4% of the vote, whereas the Lega candidate, Borgonzoni, received only 43.6% of the vote. The centre-left is also ahead of the right-wing populists in the regional parliament elections. The five-star movement (M5S), on the other hand, had a pitch-black day, with its candidate almost losing out in the duel between the other two parties with 3.4% of the vote. Despite the defeat of the M5S, yesterday's result can be seen as a victory for the governing parties in Rome, whereas the high-flying of the Lega suffered a setback for the time being.

Accordingly, investors reacted positively this morning. Yields on 10-year government bonds fell by up to 20 basis points, and the risk premium over Bunds fell below the 140 basis point mark. The optimism is based on the assumption that the danger of an imminent collapse of the alliance in Rome has thus been averted. From the PD's perspective, the result should indeed provide some calm, but the M5S continues to lose ground. Even the withdrawal of its chairman, Di Maio, who had announced his resignation as head of the party before the election, could not reverse the trend. The next important dates for Italy from a market perspective are likely to be the rating decision by Fitch on 7 February and the referendum on the reduction of the size of the parliament, which is scheduled for late spring at the earliest. But the dispute over the ESM reform has also still been resolved, so that the government can take a deep breath at the moment, but it is still too early for a general all-clear. The danger of a renewed political crisis and a collapse of the government in the course of the year is still remarkable.

There was also positive news for the Greek government. On Friday, Fitch announced that it was raising Greece's credit rating from BB- (stable) to BB (positive). The rating agency expressly cited the reform path taken by the government as the reason for this. Positive factors were the tax cuts on labor and capital, efforts to further reform the banking sector, and more intensive plans to speed up privatization. Fitch is also optimistic about the development of the debt level and expects the debt ratio to decline to 161% next year. As drivers that could lead to a further upgrade of Greece's rating, Fitch cites a continued reduction in total debt, further economic policy reforms, more growth or declining risks in the banking sector.

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