Mr Gentiloni (Mr Kind), the newly sworn in Italian Prime Minister, is a well respected former journalist and experienced politician. Yet, despite his name, he will likely oversee to a period of turbulent political and economic tensions. I give the TROIKA scenario , defined by high political instability, capital flights, rising bonds spread and possible bank runs, a probability of above 50%. The following picture sketches the reasoning behind this conclusion. All described probabilities are obviously my own priors.You can pick yours and draw your conclusions.

Simplifying a lot, there are two possible scenarios, Agreement and No agreement, and two possible outcomes, the TROIKA and BAU, business as usual.

*Agreement on Electoral* Reform

In the most favorable scenario, probability say 40% , Gentiloni manages to have the Parliament quickly approve a new electoral law. This can either be proportional, or majoritarian with a premium for the winning coalition, or majoritarian with a premium for the winning party. The last case is the least likely (10%) since it will favor Grillo’s M5S in the elections. And if Grillo wins, I thinks there is a 50% probability that his fanciful policies of Minimum Incomes, Deficit Financing and Euro-Referendum will lead directly to the TROIKA outcome. If instead Gentiloni manages to have a majoritarian/coalition electoral rule, Renzi’s come back will be extremely likely, and then BAU will be the outcome. Finally, should proportional representation emerge as the new electoral law (45% probability), a hung Parliament will result, leading to either a Grand Coalition (not likely, 30% probability) and BAU, or to a messy situation (CASINO) followed by the TROIKA outcome.

*No Agreement
*If Gentiloni gets stuck in endless negotiations, the electoral law will be effectively decided by the Constitutional Court’s ruling expected in mid January 2017. This will probably replicate a proportional system, with the consequences discussed above.

*Summing up
*The logical consequences of this reasoning can be drawn by summing up the probabilities for the BAU and the TROIKA scenario. The latter gets 56.6% probability. While a lot of uncertainty surrounds this number, its is very hard to reduce the probability of a TROIKA scenario below 50% by reasonably changing the assumptions