As Italy prepares to go to the polls after months of frustration about tighter government spending policies and slow recovery, the country’s energy sector faces a wave of uncertainty as candidates hint at solutions, but offer few specifics.
The late February elections present a stand off between supporters of an increasingly unpopular technocratic government led by Mario Monti and critics of his tighter belt approach, led by a newly resurgent Silvio Berlusconi, or as the Christian Science Monitor described it, “the populism of short-term fixes and the long-term reforms necessary to make Italy’s economy solvent, competitive, and sustainable over the long run.
So far, leaders of all sides have hinted at what the country could see as far as expanding an energy sector that is largely dependence on foreign resources for oil and natural gas. After a reversal of an offshore drilling ban late last year, Monti unveiled plans to more than double domestic crude production, suggesting increased development of local resources in favor of expensive and uncertain imports. Similarly, the head of the center-left alliance, Pier Luigi Bersani said he would emphasize domestic reserves with a concentration on natural gas and a further reduction of state support for renewable options, according to Dow Jones. For his part, Berlusconi has offered few specifics, but does bring with him deep ties to Russian producers and affection for a nuclear return in the country.
More than a specific threat to Italy’s energy sector, the country’s national elections are proving to be a source of concern to the economy and investors in general. Despite recent declines in borrowing costs, after a series of painfully high auctions, Italy has seen investors grow skittish about the future or at least about the instability that could accompany a political transition. At the heart of this are critics of the current administration’s strict spending cuts and tax reforms, introduced in an attempt to reduce stress on the economy, with many taking aim at the appointed leadership of Mario Monti. While a full return to power by Berlusconi is not expected, the former prime minister’s ability to block a full parliamentary majority could shatter confidence about Rome’s ability to stay the course and scare off nervous investors. However, even if a Democratic majority is achieved, some have suggested that their policies may prove to be just as destabilizing.
“I’m investing in the euro zone but not in Italy, because although they have a primary surplus, there’s huge uncertainty politically,” Torgeir Hoien, head of fixed income at $19 billion Norwegian investment firm Skagen told Reuters.” What kind of policies will the Democratic Party pursue if they win?”
Originally Posted in Newsbase’s Euroil Monitor