Italy Could Be Riskiest of EU Coalition Governments: JPMorgan

Former Italian PM Enrico Letta
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Former Italian PM Enrico Letta

With fresh political crises hitting the fragile coalition governments in Italy, Greece and Portugal, JPMorgan warned on Tuesday that the "cumulative impact of coalition tensions" could prove unmanageable in the long-term.

(Read More: Euro Zone Faces Make-or-Break Summer)

"The wear and tear of governing has created a series of cumulative pressures, which look a lot like the proverbial straws on the camel's back. At some point one of them is likely to cause a break (our instinct tells us risks are probably highest in Italy)," said Alex White, European economist at JPMorgan, in a research note published on Tuesday.

White explained that recent events had highlighted some of the "existing fragilities" of each country's political coalition.

"The wounds inflicted by recent political battles may have a cumulative impact, weakening the commitment to cooperation in government over the medium-term. This invites two questions; can they keep the show on the road and for how long?" he said.

Silvio Berlusconi's third conviction in two years will make life "incrementally more difficult for both sides of Italy's fissiparous coalition, by reinforcing the polarizing effects of Berlusconi's role in public life," White said. Meanwhile, the ruling coalition has failed to deliver any substantial reforms and an important decision on property tax still deadlocked.

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In Greece, Prime Minister Antonis Samaris saw his parliamentary majority slashed after his closure of state broadcaster ERT six days ago provoked one party to quit the governmental coalition.

"The momentum for reform that could have been triggered by a more successful resolution of ERT is likely to be lost; the Government can evidently be forced into concessions on public sector payrolls if resisted robustly enough," wrote White.

(Read More: Greek PM Reshuffles Cabinet to Overcome Crisis)

Meanwhile, the two-party Portuguese coalition could see additional pressures arise ahead of local elections in September.

"Senior figures within the smaller party look to have made a strategic decision that their future lies in claiming credit for the success of the Government, while blocking what they can. The danger lies in the way that this particular balance continues to be delivered over the coming months," said White.

Furthermore, the International Monetary Fund said last Thursday that the outlook for Portugal's public debt remained "very fragile", despite the country meeting its latest deficit reduction targets, on which its international bailout is dependent.

All three countries have also been hit by the global market turmoil after Federal Reserve Chairman Ben Bernanke warned last week that the Fed's bond purchases could be tapered back this year, if the U.S. economy continues to improve.

Italy and Spain both saw their borrowing costs jump at government bond auctions on Tuesday. Rome saw its two-year borrowing costs rise to 2.4 percent, having paid 1.1 percent at a similar auction less than one month before.

(Read More: Bond Fund Outflows Hit Record Level on Tapering Fears)

Nonetheless, White forecast all three coalitions would survive long enough to see 2014.

"In some ways they have been surprisingly successful; the pressure to avoid a more generalized crisis of confidence has pushed traditional opponents to cooperate in the interests of self-preservation," he said.