European leaders argued for calm, stressing that the political confusion would soon clear up and that negative market reaction would be short-lived as Italians and their European partners returned to the work of building greater integration. But they also stressed that the course of reform started under the current prime minister, Mario Monti, must be continued, for the good of the 17-nation euro zone.
Results indicated that the center-left Democratic Party, led by Pier Luigi Bersani, would have a majority in the Lower House, thanks to the premium of bonus seats given to the largest bloc. But it would only have about 119 seats in the Senate, compared to 117 seats for the center-right People of Liberty party, led by former Prime Minister Silvio Berlusconi — far short of the majority of 158 required to govern.
Mr. Berlusconi hinted that his party might be inclined to form a grand coalition with the Democratic Party, a prospect that would be ideologically incoherent but that experts said might be the only governing coalition possible, given the results.
Mr. Monti’s party, which had helped restore investor confidence at the cost of unpopular spending cuts and tax increases, dropped into last place, behind the protest vote winner, the Five Star Movement of the former comedian Beppe Grillo. The result left the recession-weary nation with no clear path forward and the possibility that another round of elections might be necessary.
The Euro Stoxx 50 index, a barometer of euro zone blue chips, fell 3.1 percent, while the FTSE 100 index in London dipped 1.3 percent. The MIB stock index in Milan slid 4.9 percent.
Investors also dumped Italian debt. The yield on the 10-year sovereign bond, which moves in the opposite direction of the price, rose 40 basis points to almost 4.9 percent. Portuguese, Spanish and Greek bond prices also fell.
Bond yields have a direct effect on government financing costs, and it was the rise in Italian and Spanish government yields that led the European Central Bank to promise last July that it would do whatever necessary to save the euro. The Italian stalemate risks releasing the market pressure that the E.C.B.’s action was meant to end.
The euro was roughly unchanged at $1. 3061, after falling sharply Monday in New York.
Uncertainty about the Italian situation echoed around the world. Asian shares dropped Tuesday, with the Nikkei 225 stock average in Tokyo closing down 2.26 percent and the Hang Seng index in Hong Kong closing down 1.32 percent. New York stocks fell Monday, but were little changed Tuesday afternoon.
Olivier Bailly, a spokesman for the European Commission, the policy making arm of the European Union, on Tuesday urged Italy to form a government and to continue policies aimed at bringing down its public debt.
“The European Commission places its full confidence in Italian democracy, and the European Commission will work closely with the new government in order to relaunch growth and the creation of jobs in Italy,” Mr. Bailly said during a news conference in Brussels.
He suggested that continuing reforms was the best way to combat the instability on financial markets that followed the vote. “Markets are free to react the way they want,” he said. Italian leaders needed to “establish a political majority that will continue to deliver a growth and jobs agenda, which is basically what Italy needs in order to reduce the unsustainable level of its debt.”
According to a recent and wide-ranging study on the reform prospects for countries in the euro zone, the Lisbon Council, a research organization based in Brussels, concluded that Italy ranked last among all countries that use the euro in terms of its ability to generate economic growth over the long term.
Luis de Guindos, the Spanish economy minister, said on Tuesday that he was confident that the negative impact of the Italian vote on financial markets would be “only in the short term.” He told Spanish reporters that Italy would eventually manage to form “a stable government,” which would also be in the interest of Spain and the rest of the euro zone.
Before the election, Germany made very clear its expectations that whoever takes over in Rome must continue to implement the course of reforms begun under Mr. Monti. This line echoed throughout Berlin on Tuesday.
“It is important that Italy have a functioning government,” Michael Grosse-Broemer, an important ally of Chancellor Angela Merkel and parliamentary floor leader of her center-right party, said Tuesday. “Mr. Monti’s course of reform must be continued.”
“There is no alternative to the course of structural reform that has been started,” Philip Rösler, Germany’s economy minister, told the German public broadcaster ARD, adding his disappointment at the apparent lack of support for the country’s pro-reform parties .
Guido Westerwelle, the foreign minister, also called for Italy to swiftly form a “stable and functioning government,” stressing its importance for the rest of Europe.
But Werner Faymann, chancellor of Austria, warned against allowing concerns over the future Italian government to spark another debate over the future of the euro, insisting that the common currency was strong enough to withstand a period of instability.
“The euro remains stable even when it is not yet clear in any given country how a government will be formed,” Mr. Faymann said, according to ARD.
How worried Germans are about what political chaos in Rome could mean for them came across clearly in the German media.
“The election shows that Italy remains susceptible for populist slogan. This is demonstrated by the nearly 25 percent support for the cheap, angry outbursts of the anti-party of comedian Beppe Grillo. And then the 30 percent for Berlusconi,” wrote the daily Tagesspiegel in a commentary on Tuesday, pointing out that amounted to about every second voter supporting a populist.
“It is a very scary prospect that does not engender hope for Italy’s future,” the newspaper wrote. “We are a long way from a cure for the Berlusconi disease.”
David Jolly reported from Paris. Rachel Donadio in Rome, James Kanter in Brussels, Melissa Eddy in Berlin, Raphael Minder in Madrid, and Landon Thomas Jr. in London contributed reporting.
Article source: http://www.nytimes.com/2013/02/27/business/global/daily-euro-zone-watch.html?partner=rss&emc=rss
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