Europe — it seems — is still not done with early elections and extra ballots.

The prospect of an early Italian election — ahead of the planned poll by the spring of 2018 — is beginning to look more likely, with markets starting to take the possibility seriously.

Italian government debt is under-performing its eurozone rivals this morning as investors hone in on the prospect of earlier than expected elections in the bloc’s third largest economy.

Italian politicians are set to discuss a first draft of the new law early that changes the electoral system next month with an agreement eliminating the need to wait for scheduled elections in early 2018.

The new system would mean Italy adopts a proportional system similar to the German model with a five percent cut-off for smaller parties.

Giovanni Orsina, a professor of government at Rome’s Luiss-Guido Carli University told Bloomberg:

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By GlobalData

Momentum is building among political leaders and is pushing towards early elections but it will be an uphill battle against the president and parts of the rank-and-file in the parliament.

The market reaction

Italian government debt is under-performing its eurozone rivals as investors warm to the prospect of earlier than expected elections.

Italy’s 10-year debt yield, a measure of the government’s borrowing costs which fall when prices rise, has gained over two basis points (0.02 percentage points) to hit 2.2 per cent – a two week high it was reported by the FT.

Italy has had an interim government since former PM Matteo Renzi’s resignation last December, but Renzi has now added his voice to calls for a vote on the electoral reforms.

He is seeking a political comeback from the referendum defeat that led him to resign.

Analysts at Barclays said that while a later election remained their base case, “the probability of snap elections has risen substantially”.

Barclays’ Fabio Fois was reported by the newspaper as saying:

The unexpected convergence of PD, FI and 5SM on voting system reform, if maintained for the time needed to design every technical aspect of the voting system reform, suggests that political parties may be willing to exert pressures on president Mattarella to dissolve the parliament before the summer break.

Italy’s populist and eurosceptic Five Star Movement (M5S) and Silvio Berlusconi’s centre right Forza party have also come out in favour of the move to a proportional system.