Italian crisis rocks markets
++ Bond yields soar ++ Euro slides ++ Global stocks sink ++ FTSE loses £25bn
ITALY’S borrowing costs saw their biggest jump in 26 years as the political crisis gripping the country raised fears of a eurozone break-up.
The prospect of fresh elections in the bloc’s third-biggest economy spooked investors, sending Italian bond yields soaring and shares and the euro tumbling.
Another poll could be held as early as July 29, and traders fear it could be a proxy referendum on Italy’s membership of the single currency.
As panic spread through global markets yesterday, the yield on twoyear Italian bonds rose towards 2.8pc, having started the day below 1pc – their worst day in 26 years. On Monday they were below 0.3pc.
The yield on Italy’s ten-year bonds rose from around 2.7pc to as high as 3.4pc, a level not seen for four years, as nervous investors demanded higher returns to lend to the government in Rome.
Meanwhile, the cost of insuring Italy’s debt against default shot up and the stock market in Milan fell 2.7pc.
As one analyst warned of ‘capitulation’ on markets, Ignazio Visco, governor of the Italian central bank, said: ‘We must never forget that we are only ever a few short steps away from the very serious risk of losing the irreplaceable asset of trust.’
Billionaire financier George Soros said: ‘The European Union is in an existential crisis. Everything that could go wrong has gone wrong.’
Amid the turmoil, the FTSE 100 fell 1.3pc, or 97.64 points, wiping £25bn off the value of Britain’s biggest firms, and the euro hit ten-month lows against the dollar.
The stock market in Madrid was down 2.5pc, while Paris sank 1.3pc and Frankfurt 1.5pc.
In Spain, prime minister Mariano Rajoy faces a vote of no confidence on Friday, and the IMF warned that previously bailedout Portugal was vulnerable. The rout spread across the Atlantic to Wall Street where the Dow Jones Industrial Average and S&P 500 were deep in the red.
Premier Asset Management investment manager Jake Robbins said: ‘These events could ultimately threaten the future of the EU, or at the very least, question it in its current form.’
Paul Nolte, of Chicago-based Kingsview Asset Management, said: ‘Each time it happens, people wonder “is this the time the euro blows up?”’.
The crisis in Rome worsened after populist parties Five Star Movement and League vowed to torpedo a technocratic government proposed by President Sergio Mattarella.
He sparked a major row over the weekend by vetoing their nominee for finance minister, Paolo Savona.
The stand- off will almost certainly lead to fresh elections in the coming months.
Neil Wilson, chief market analyst at Markets.com, said: ‘President Mattarella’s decision to reject Savona may have been a miscalculation. The move has temporarily blocked a populist government forming but only serves to strengthen the position of League and Five Star in the long run as it strengthens their anti-establishment credentials.
‘If snap elections produce a clearer mandate for the populists and they succeed again in forming a government, Italy heads for a collision with the EU.’