The very modest hope that government actions in Italy might stabilize its economy probably has come to an end. Italian Prime Minister Mario Monti has announced his resignation, which leaves the national political situation in turmoil. That in turn raises questions about whether a new government will embrace austerity measures Monti put in place in an attempt to balance the nation’s budget. Politicians who believe that Monti has gone too far may take power. Former prime minister Silvio Berlusconi is among these. So, the uncertainty about the future of Europe gets one more unstable element.
Italy’s 10-year bond yield jumped 29 basis points to 4.81 percent, the biggest increase since Aug. 2. The cost of insuring Italy’s debt jumped the most in a year, with credit-default swaps on climbing 31 basis points to 284, the highest since Nov. 21.
Watch for these yields to go much higher if the election results favor Berlusconi and his party.
Douglas A. McIntyre