From politics to economics

The Italian election has shaken the Italian financial market. The Italian bond yield has increased to a historical peak and the Italian central bank has warned that the current populist government will let the market question and even lower the credibility of the government. We can see from the Italian election that the influence of politics, especially the expected government policies in the future, shape its financial market.

It is undoubted that politics has significant influence on economics as well as the financial market. Firstly, politics determine the central government fiscal policies as well as the central bank monetary policies. These policies can have influence on the economy as well as the financial market. Secondly, politics will determine the regulation rules. Sometimes the policies including government expenditures do not have very significant influence on the financial market and the economy because the expenditures may have temporary impacts rather than permanent impacts; however, regulations will always be there unless they are changed by the government. Therefore, such influence is more permanent. Thirdly, politics will have influence on the individuals including individual people and individual groups (companies, organizations and etc.) and such influence will affect individuals' investment and consumption strategies and preferences, leading to impacts on the economy as well as the financial market.

Politics is so important that it continues to influence our life including our economy and future incomes.