Italian Government On Verge Of Collapse

Leaders of Italy's Democratic Party (PD) are currently meeting to decide the fate of the Italian government.

PD secretary and mayor of Florence Matteo Renzi is looking to unseat current prime minister and fellow party member Enrico Letta. In a speech at the beginning of the meeting, Renzi said Italy needed "a new phase with a new government backed by the same coalition forces," thanking Letta for his service to the country.

"Mr. Renzi reckons his electoral appeal and his strong support within the PD make him better equipped to push through the political, institutional and economic reforms Italy has sorely needed for a long time," says Nicholas Spiro, managing director of Spiro Sovereign Strategy.

"This is a high-stakes gamble by Mr. Renzi to force Mr. Letta to bow out so that he can assume the premiership, push through the much-needed electoral law and then decide whether it's better to go to the polls or govern for a few more years."

We will bring you the results of the meeting here as soon as they are announced.

"It is important to remember that any switch in leadership is very unlikely to involve the holding of national elections - indeed given that electoral reforms have still not been passed it is certainly not in Renzi's best interests for elections to occur prior to these happening (as he could also become associated with the difficulties in passing any reforms)," write interest rate strategists at Rabobank in a note to clients.

"However, it should be remembered that even if Renzi does take over as party leader today he is likely to face many of the same issues as Letta with regards to making any progress with passing reforms through the Italian parliament (to do this he needs to win elections and for this to be certain he needs to first pass electoral reforms). Thus, although initial thinking would be that [Italian government bonds] would suffer as a result of the political uncertainty (and there will likely be a knee jerk reaction in the short term) we would argue that relatively little will have actually changed in the bigger picture - again assuming that the Democratic Party's coalition parties are prepared to support Renzi as they did Letta."