Italian stocks have
fallen sharply, reacting to news that Prime Minister Mario Monti plans
to resign and former premier Silvio Berlusconi is to run for office
again.
Mr Monti was brought in to try to steer Italy away from financial disaster
The main Italian stock index fell 2.3%.
Other indexes throughout Europe were also lower, with banks the worst hit among shares.
French President Francois Hollande said Mr Monti's decision
to step down early was "a pity" but said Mr Monti would stabilise Italy
before the election.
"It's a pity for the short term, but in one month or two
months, it will appear that Mr Monti is able to join a coalition or to
go forward to stabilise Italy," Mr Hollande told Reuters in Oslo, after
European leaders were presented with the Nobel Peace Prize.
"So we support the efforts of Mr Monti until the election, and after that the Italian people will choose the best government."
Record borrowing costs
Mr Monti became the leader of a technocrat government in 2011 after investors became worried about Italy's economic health.
Mr Berlusconi's People of Freedom party withdrew its support
from the government on Thursday, and Mr Berlusconi confirmed he would
lead his party into next year's elections - now on course to be held
slightly earlier than expected.
Mr Monti had planned to serve until April 2013, when the
current parliamentary term runs out. He had hoped this would be enough
time to "rescue Italy from financial ruin".
The withdrawal of his political support means that elections are now set for February.
Last Updated at 16:23 GMT
He replaced Mr Berlusconi after Italy's
long-term borrowing costs reached levels widely perceived as
unsustainable. The Italian 10-year bond yield hit a euro-era record of
7.48% in November 2011, bringing about Mr Berlusconi's departure.
Since then, Italy's yields have dropped and the focus has
shifted to Spain, which has taken a bailout for its banks, and back to
Greece.
However, on Monday, Italy's 10-year bond yield jumped 0.3 percentage points to 4.8%.
Among individual shares in Italy, banks were the hardest hit.
Italy's biggest, Unicredit, fell 6%. Banca Monte dei Paschi di Siena
fell 7% and Banca Popolare di Milano declined 6.9%.
Across banks in Europe, Germany's Commerzbank fell 2.9% and
France's BNP Paribas dropped 2.5%. In Spain, banks such as Santander,
Bankia and BBVA all turned lower.
"Monti is the one who managed to stabilise Italy and stop the
contagion from Greece," said David Thebault, a trader at Global
Equities. "His surprise resignation brings back the political risk in
the equation, something we had forgotten about."
Italy's government has the biggest debt burden of any of the
major eurozone countries at 123% of economic output (GDP), which makes
it particularly susceptible to a loss of market confidence. This is
because higher borrowing costs would make it very difficult, if not
impossible, for the government to roll over its debts as they come due
for payment.
'Political theatre'
“Start Quote
Italians in the weeks ahead will be
able to address one of the key issues facing Europe: are the austerity
measures and reforms designed in Brussels and Berlin working?”
Jane Foley, a currency strategist
at Rabobank, said: "The resignation of Italy's technocrat PM Monti at
the weekend has re-awakened fears of a return to old style political
theatre in the country and brought some fresh downside pressure for the
euro."
The 17-nation currency fell against the dollar and British pound.
Mr Monti, an economist who heads a unelected cabinet of
technocrats, has said he will try to pass a budget and financial
stability law before standing down.
A statement from the office of President Giorgio Napolitano
over the weekend said that Mr Monti "does not think it possible to
continue his mandate and consequently made clear his intention to
present his resignation".
If the law for next year's budget can be passed "quickly", Mr
Monti would immediately confirm his resignation, the statement said.
An election must come within 70 days of the government resigning. Italy had been due to go to the polls by April at the latest.
"Although Mario Monti is respected abroad as the leader who
brought stability and reform to Italy, at home the economy remains mired
in recession," said the BBC's Europe editor Gavin Hewitt.
"The speed with which Mario Monti announced he would stand
down raises the question of whether he might be persuaded to lead some
parliamentary grouping. It is what Brussels and Berlin want."
How some eurozone economies are faring
|
|
Q4 2011
|
Q1 2012
|
Q2 2012
|
Q3 2012
|
| Source: Eurostat; figures show % change compared with previous quarter |
| Eurozone |
-0.3 |
0 |
-0.2 |
-0.1 |
| Germany |
-0.1 |
0.5 |
0.3 |
0.2 |
| France |
0 |
0 |
-0.1 |
0.2 |
| Italy |
-0.7 |
-0.8 |
-0.7 |
-0.2 |
| Spain |
-0.5 |
-0.3 |
-0.4 |
-0.3 |
| Netherlands |
-0.6 |
0.2 |
0.1 |
-1.1 |
| Portugal |
-1.4 |
-0.1 |
-1.1 |
-0.8 |
|
|
|
|
|
Mr Monti - a respected former commissioner at the
European Union - has tried to pass reforms, including implementing in
July a series of spending cuts of 26bn euros (£21bn, $32bn) over three
years to tackle the deficit.
But many of the proposals have been watered down or stalled as they have gone through parliament.
German foreign minister Guido Westerwelle urged Italy to push on with its reforms.
"That would bring new turmoil not only to Italy, but also to Europe," he said.
Italy's economy has been shrinking all year - its fourth recession of the past 10 years.
Employers' lobby group Confindustria predicts that the
economy will shrink 2.4% this year, with unemployment hovering around
11%. The government forecasts the economy will contract by 1.2% this
year.
Mr Berlusconi was convicted of tax fraud in October, though
he is appealing against that ruling, and he is also on trial accused of
paying for sex with an underage prostitute.
He has already served as Italy's prime minister for three
separate terms and built up what is believed to be a vast personal
fortune from his business empire.