When Religion and Economics Don't Mix

The head of the world's nearly 1.2 billion Catholics, Pope Benedict XVI, said that he would be leaving his position at the end of the month, citing failing health and an inability to perform his duties as the reasons for his resignation. Catholics worldwide were shocked; financial markets, not so much.

Though this is the first time in more than 600 years that a sitting pope has abdicated, there was no knee jerk market response to the papal announcement, a reaction typical of the past since popes usually died in office. The Euro moved up, then down, then up again and stock markets in Europe finished the day off higher. Ho hum.

Will there be any effect on the financial markets? It's hard to say at this point, and could depend on how long conclave might last which might impact the decisions of a handful of die-hard Catholic investors. When the last announcement of a new pope was made, way back on April 19, 2005, Italy's stock market tumbled 5.7%, while Germany's DAX edged only a few points lower and the EUR/USD pair was trading at $1.2996, gaining only a few pips from the previous day's $1.2967.

Where there might be a perhaps significant impact is on the upcoming Italian election for president and Parliamentary seats. Italy is the third largest economy in the Eurozone, and its economic health is important to the Eurozone as a whole. Any political negativity could greatly impact the Italian financial markets, sovereign bond yields and ultimately, the Euro.

It was no secret that the Pope, and indeed the whole of the Vatican, had been highly critical of Silvio Berlusconi's shenanigans, and thus unlikely to be supportive of Berlusconi's bid for reelection. A magazine article recently published by the Catholic Church said that Berlusconi, a "?dinosaur," put back in power could throw the country into chaos. The current Prime Minister, Mario Monti, who has consulted with the pope on numerous occasions to discuss the Italian economy, has had, if not an outright endorsement of his party, as close to it as one might get from the pontiff. With the Italian election only two weeks away, and a few days prior to the pope's departure on February 28th one must wonder if the political dynamics in Italy might be on the verge of a major change.

DailyForex.com Team
The DailyForex.com team is comprised of analysts and researchers from around the world who watch the market throughout the day to provide you with unique perspectives and helpful analysis that can help improve your Forex trading.