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Graham Wainer: Italian election could put brakes on European recovery
by Graham Wainer on Feb 22, 2013 at 13:32
But this means little to people who see nothing but rising unemployment, falling salaries and higher taxes.
European economic growth is uniformly weak and set to stay that way for much of this year. In contrast, the US economy has almost completely avoided any form of austerity and its economy is recovering smartly. The long term outlook and a pressing US debt problem simply don’t matter enough to voters.
Just as the positive influence from Italy following Monti spread across the region and allowed austerity to continue, thus keeping bond yields in check, the election may trigger a reversal.
Rising bond yields, weak growth and unpopular austerity would be a toxic combination and the ECB’s newly established lender of last resort status could finally be put to the test.
Investors have been increasingly optimistic about the global economy but a crucial part of this has been the calmer waters in Europe.
There is still a chance that Italy’s politicians can emerge with enough impetus to keep the show on the road but, with an election race that is increasingly neck and neck, investors should brace themselves for turbulence.
Graham Wainer (pictured) is global head of investments - managed portfolios.
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