Italy has been the weak link among the periphery countries in the recent recovery, but the new political generation seems willing to accelerate the implementation of structural reforms in order to generate growth.
Moreover, it should become much easier to implement structural reforms going forward. This is because Italy's bicameralism is brought to an end, as it seems very likely the Senate will be stripped of powers to hold confidence votes.
According to ECB President Mario Draghi, negative credit growth contributes to the economic weakness in the stressed countries, where weak credit can account for up to a third of the economic slack. This also seems to be the case in Italy.
The ECB's TLTRO will potentially provide liquidity to Italian banks. This should support the recovery, as banks have improved their capital and profit situation, while there is demand for credit from consumers and enterprises.
Although Italy has lagged the economic progress seen in other periphery countries, the government bond market has performed well. This reflects Italy's large domestic demand and a liquid government bond market.
In line with the other periphery countries, Italy could benefit from the positive rating cycle but it is conditional on an implementation of economic and labour market reforms such that the growth prospects are improved.
The other periphery countries will also benefit from the ECB's stimuli, although some of the banks still need to improve capital conditions.
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