Italian deadlock sends markets downward
on 26/02/2013 14:08:55
A day after polling ended a few seats in parliament based on Italians voting abroad still remained to be decided, but their numbers will ease the deadlock. European leaders pleaded with politicians in Italy to quickly form a government to continue to enact reforms to lower Italy's critically high debt and spare Europe another rise in its four-year financial crisis.
If Italian parties fail to form a governing coalition, new elections would be required, causing more uncertainty and a leadership vacuum.
"What is now decisive for Italy - but, because Italy is such an important country for Europe, also for the whole of Europe - is that a stable government that is capable of acting can be formed as quickly as possible," German foreign minister Guido Westerwelle said.
The results of the election are a rejection of the tough austerity approach of the previous technocratic government led by Mario Monti. A centre-left coalition led by Pier Luigi Bersani appears to have won a narrow victory in the lower house of parliament, while the Senate looks split with no party in control.
Italy's FTSE MIB index was trading 4.7% lower. Some of its banking stocks were briefly suspended after precipitous falls at the bell.
Whether the negative market reaction extends further into the week depends on how quickly a solution is reached in Italy.
Silvio Berlusconi, the former Italian premier whose centre-right coalition did better than expected, insisted that a government can be formed and called on Italians to ignore the "crazy markets." He is a key player as his coalition is now the second-biggest bloc in the upper chamber.
"Markets go their own way. They are independent and also a little crazy," he said, adding that a government can be cobbled together if rival politicians are willing to "make some sacrifices."
Italy is hugely important for the future of the euro, and its apparent stability over the past six months has been one of the reasons that concerns over the currency have eased. Of the 17 eurozone countries, Italy has the second-highest debt burden as a proportion of its gross domestic product. Only Greece's is higher.
The Monti government enacted wide-ranging reforms to the budget and the economy. Although its borrowing rates have fallen in financial markets, the cost to Italians has been high, with the country mired in an 18-month recession and unemployment on the rise.
Mr Monti was a big loser in the election and Mr Berlusconi ruled out an alliance with his successor, whom he blamed for driving Italy deeper into recession.
The worry across Europe, and in financial markets everywhere, is that Italy's appetite for reform may wane and its debt situation may deteriorate.
The surprise factor in Sunday and Monday's election was the number of votes for comic-turned-political leader Beppe Grillo, whose 5 Star Movement capitalised on a wave of voter disgust with the ruling political class.