Markets have been under pricing the political risk posed by the Italian elections to the Eurozone's financial stability, particularly as former Prime Minister Silvio Berlusconi’s center-right party gains votes on siren calls of tax and spending cuts that will jump-start growth. While an alliance between leftist front runner Pier Luigi Bersani and the right-leaning Mario Monti is expected to take the cake, the high share of undecided voters and the recent Monte dei Paschi banking scandal have raised the political stakes as Italy may become ungovernable, which could wreak havoc in peripheral bond markets and precipitate the next leg of Europe’s never-ending sovereign debt crisis.
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