Morgan Stanley Says There's A 30% Chance Of A Crisis And New Elections In Italy

Our base case is that Italy is able to form an (albeit weak) government, keeping our economics and strategy base case at ‘eurozone crisis contained, not resolved’. We assign a 30% probability that the ‘Crisis’ stage of the CRIC cycle returns, although with less intensity than in 2011 or 2012.

Italian political risk scenarios: We assign a subjective 70% probability that another round of elections can be avoided in Italy, but only a 10% probability that such a government will be strong and stable. We assign a 30% probability to our bear case that no viable government can be formed, and new elections are needed. We caution that the situation remains fluid.

Italy's elections are definitely still top of mind for many investors, even though many markets outside of Italy have forgotten the events of exactly one week ago.