Italian asset markets continue to fare better than many expected. The political uncertainty following the March election has been followed by confidence that the Five Star Movement and the (Northern) League will be able to put together a government in the coming days. If so, Italy would have taken half the time Germany did to cobble a government together after inconclusive elections.

Politics makes for strange bedfellows, the saying goes, and Italy is not an exception. The Five Star Movement campaigned against being in a coalition with any of Italy's political parties, and the center-right campaigned hard against it. Since the election, the Five Star Movement has managed to peel away the League from Berlusconi's Forza Italia.At the League resisted and then Berlusconi relented.  

Recall that Berlusconi was banned from holding electoral office for past misconduct. He appealed to the European Court of Justice, but before it could rule, the Italian judiciary cut short Berlusconi's prohibition by a year for good behavior. He is allowed to hold office now. However, the support for his party has waned and the League has consistently outpolled it. Given that the center-left PD has done poorly in the polls, and split between a realos and fundos wing, Forza Italia may be the largest opposition party. Moreover, with a poor track record of finishing a term, Italian politics remain fluid, and Berlusconi remains a force with which to reckon.  

It is tough to classify the Five Star Movement.It has toned down the anti-establishment and anti-Europe rhetoric. Perhaps Greece's experience dissuaded it from repeating the same confrontational approach. Its anti-corruption thrust distinguishes it from others.In some ways. it is within the social democrat tradition. The League is not populist, but nationalist and nativist. Although it is trying to rebrand itself so it is not seen as a party of the wealthier northern Italians.It too has de-escalated its rhetoric regarding ditching the euro or antagonizing the EU.