Italian Election Preview: Will Italy Vote the Full Monti?

This weekend, Italians will hit the polls in the much anticipated parliamentary elections. The elections will decide the next ruling party in Italy and could very well determine the near-term future of the European debt crisis, thus making it a major trading event for investors.

Opinion polls have been in a blackout period for about two weeks now, so there are no current data points that could lead investors to predict the election.

However, the trend ahead of the elections was that former Prime Minister Silvio Berlusconi, running on an anti-austerity, pro-growth platform, was closing in on the favorite Pier Luigi Bersani. However, there are other important players in the election of whom investors should be informed.

Investors will be familiar with current technocratic Prime Minister Mario Monti, who was appointed upon the resignation of Berlusconi to clean up the nation's finances and lower the nation's debt load. So far, he has been fairly successful and is probably most responsible for easing Italy's debt woes and allowing it to fade into the background, behind other crisis nations such as Spain and Greece.

Monti is up for reelection; however, he was trailing both leading candidates, Grilli and Berlusconi, in opinion polls. The two leaders were effectively tied when accounting for the sampling error of these polls. Thus, the election is anyone's game at this point.

A fourth key player in the elections is almost too funny to believe; and that is because he is a comedian by trade. The leader of the Five Star Movement, a quasi-socialist, anti-European Union party, is none other than Beppe Grillo, outspoken socialist, comedian, blogger, and now politician.

Looking at the last opinion polls released February 8, Bersani's party, the one investors should back given their pro-austerity and pro-euro stance, led with approximately 35 percent of the vote. Berlusconi's coalition garnered about 32 percent of the vote while Monti received about 14 percent. Beppe Grillo also had a sizable 16 percent of the votes.

Investors should recall over the summer, how Greece failed in its first attempt to form a majority coalition and create a government. Currently, should Grillo's party side with Berlusconi, it may be difficult for a Bersani-Monti coalition to form a government.

Analysts liken this scenario to the one that played out in Greece over the summer, where markets were in turmoil fretting over the fate of the Greek political system. This time, the same fears persist, however the magnitude of the outcome is about eight times larger, considering that Italy's economy is about eight times the size of its Mediterranean counterpart.

Elections take place Sunday, February 24 and continue through Monday, the 25, with the first exit polls being released after the close of polls on Monday.

This should be around the close of markets in the U.S. and should create some trading volatility into the close of American trading. Also, Italy has just announced a 4 billion euro debt sale of 10-year bonds for the 27, of which yields should be very volatile in the lead-up to the auction.