Italy's government: like an unholy marriage of Ukip and the unions The Italian government is a coalition between the left-wing Democratic Party (PD) and the right-wing PDL (led by Berlusconi). Since each party is itself a broad group, it's a pretty unstable coalition.
From a British voter's point of view, it's as if our own government was run with David Cameron as prime minister, Ed Miliband as chancellor and Nigel Farage and Len McCluskey as ministers.
The only reason the group is still standing is that no one can be sure which party would emerge ahead in any new election. They are particularly concerned about the revival of the populist Five-Star Movement.
However, the Berlusconi verdict is already starting to cause the coalition to splinter. One PDL minister has already resigned. There are rumours that Berlusconi is preparing for an immediate election, reviving his Forza Italia party.
Another twist is that, thanks to a law passed by former prime minister Mario Monti, the senate will have to vote on whether the disgraced tycoon should be kicked out of parliament altogether.
Needless to say, this is not the ideal political situation for a country with Italy's woes. At the very least, it's going to be hard to pass any further legislation until the matter is resolved. And if an election is called, it could result in a big austerity backlash. The central bank in Italy now reckons that the economy could shrink by nearly 2% this year. That's not going to make the voters very happy.
The world is losing patience with Greece Italy isn't the only problem country in the eurozone, of course. There's also the question of Greece. For now, the official line is that after bail-outs and 'haircuts', Greece is on track to meet its targets and repay its debts without further help.
Everyone knows this is nonsense. Even if everything goes to plan, Greece will be left with crippling debts. And the chances of everything actually going to plan are very slim.
The International Monetary Fund (IMF) made clear last week that Greece is falling behind its targets, and will need to find an extra $11bn in the next two years. With unemployment still rising, this seems out of the question.
The fact that the IMF came very close to refusing to release a large chunk of aid to Greece that had already been promised as part of the last deal, shows how bad the situation is.
Indeed, several Latin American countries took the unprecedented symbolic step of voting against the payout. While bigger shareholders outvoted them, even the official report states that Greece is very close to being refused any more money.
Overall, the IMF is clear that the euro nations must make a bigger contribution. As Christine Lagarde puts it, there is "no reason" for the European Union not to "consider further measures and assistance". In other words, Brussels needs to accept 'haircuts', rather than demanding more funds from Washington DC.
But this solution ignores the political realities. There is no appetite for further direct bail-outs. And with the German elections in September, it would be political suicide.
How to profit from Europe's coming reality check From the refusal of the European Central Bank (ECB) to even cut rates it's clear that the ECB is loath to take action.
But there's no alternative that doesn't risk the breakup of the euro: something that Brussels wants to avoid at all costs. In fact, a recent study by the Richmond branch of the US Federal Reserve warns that if Brussels doesn't act, it could be at risk of a Japan-style lost decade or two.
These days, 'doing something' as a central bank means printing money. That ,of course, would be bad for the euro – and good for exporters. Given their still depressed valuations, this makes export-focused companies in troubled eurozone countries great value.
One such firm is the Italian car company
FIAT (MIL:F). We first tipped this stock in
March 2012 , and over the past year it has gone up by over 50%.
As well as benefitting from a cheaper currency, Fiat's ownership of Chrysler is a cheap way to buy into the surge in US car sales. However, it still trades at only 11 times next year's earnings. Even better, it trades at only a 16% premium to the value of its net assets.
Money printing won't just benefit exporters. Indeed, the threat of more action is stoking inflation fears in Germany. Combined with house prices that are one of the cheapest in Europe, this is setting off a building boom. We'll be covering this in more detail in an upcoming issue of MoneyWeek magazine. If you're not already a subscriber, get your
first three issues free here.
Got a comment on this article? Leave a comment on the MoneyWeek website, here. Until tomorrow,
Matthew Partridge
Senior Writer, MoneyWeek
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