Ital­ian elec­tion means new stress for euro

The eu­ro­zone could now be in for a rougher ride as 2013 be­gins.

Austin American-Statesman - - BUSINESS - By David mchugh

FRANKFURT, Ger­many — Un­til last week­end, Europe seemed headed for a quiet Christ­mas and New Year’s. Then Italy’s Prime Min­is­ter Mario Monti un­ex­pect­edly an­nounced he would re­sign, pulling the plug on a government that had boosted con­fi­dence in the coun­try’s abil­ity to man­age its debts.

The prospect of a re­turn to a shaky government and shakier fi­nances has sud­denly put new strains on the lead­ers of the 17-strong group of Euro­pean Union coun­tries that use the euro and their ef­forts to bot­tle up the re­gion’s debt and eco­nomic cri­sis.

An­a­lysts warn that af­ter sev­eral months of calm, the eu­ro­zone could now be in for a rougher ride as 2013 be­gins.

The con­cern is that Italy’s prob­lems will spread and fur­ther un­set­tle other parts of the eu­ro­zone. Greece faces skep­ti­cism that it can keep paying its debts de­spite $310.6 bil­lion in bailouts and Spain is still weigh­ing whether to ask for a res­cue from the eu­ro­zone’s bailout fund.

Since it took of­fice in Novem­ber 2011, Monti’s 13-month-old government has man­aged to lower Italy’s bor­row­ing costs in the bond mar­kets. His un­elected cab­i­net of ex­perts had un­til elec­tions sched­uled for April to im­ple­ment re­forms. Monti re­signed ear­lier than ex­pected af­ter Ber­lus­coni’s party with­drew sup­port for his government on Thurs­day.

Italy’s bor­row­ing costs started to rise again Mon­day morn­ing as in­vestors wor­ried over who would keep the coun­try on the path to re­cov­ery. The in­ter­est rate on Italy’s 10-year bonds, a key in­di­ca­tor of the debt cri­sis, jumped to 4.84 per­cent Mon­day. Last week they yielded only 4.4 per­cent — down from over 7 per­cent at the start of 2012. At one point dur­ing the day, Ital­ian stocks slumped more than 3 per­cent.

The worry is that heav­ily in­debted Italy, the eu­ro­zone’s third-largest econ­omy af­ter Ger­many and France, will now slow down or halt ef­forts to shake up its econ­omy. The coun­try’s debt stands at 126 per­cent of its an­nual gross domestic prod­uct.

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