Italy news: Expert preparing for ‘CATASTROPHIC event’ which could HIT Italy and banks | City & Business | Finance

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The economist said investors will have to consider the “low probability” of a hard hit to the Italian economy as the country plunges into political crisis.

Instability in and continued concerns over Brexit have pushed the price of the EU common currency down in a torrid week for European traders.

In a statement to CNBC, Mr Shepherdson said: “Investors have to price-in the low probability of an absolutely catastrophic event, which would result in enormous stresses on European banks, capital controls in Italy, and a collapse in asset prices.”

The decision has effectively blocked parties Lega and Five Star Movement (M5S) from forming a populist coalition Government.

Global markets reacted poorly to the political uncertainty, with the Italian stock market plummeting down 3 percent on May 29 after losing 10 percent throughout May.

Krishna Guha from Evercore ISI said: “Markets will live under a cloud from Italy risk with a high probability of further bouts of stress over the months ahead, which should keep global safe bond yields from moving aggressively higher.”

Investors across Europe have been nursing a growing concern that a new vote in Italy could become a de facto referendum on the eurozone.

President Mattarella’s decision to veto Prof Savona was blasted by eurosceptic Lega leader Matteo Salvini, who put forward the name of the anti-euro economist.

Mr Salvini accused President Mattarella of being biased and called for new elections.

His coalition partner, M5S leader Luigi di Maio, called for the president’s impeachment.

Economist Ludovic Subran said today that President Mattarella’s move was creating a “cocktail for more populism”.

Latest polls show that Lega is at 27.5 percent, stealing 3 percent of the votes from former election partner Forza Italia, while M5S is at 29.5 percent.

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