Former Prime Minister Silvio Berlusconi said he would again seek Italy’s highest office, leading Mario Monti, the unelected official who currently holds the office, to say he would step down.
Mr. Monti has restored Italy’s credibility with investors, giving the country a break on its borrowing costs. But those gains have come at the cost of painful austerity measures that have worsened the country’s economic situation, and given Mr. Berlusconi an opening to attack.
Mr. Monti will leave after Parliament passes a budget this month and may contest national elections against Mr. Berlusconi, with the vote — previously scheduled for April — now possible as early as February or March.
Mr. Berlusconi, a four time prime minister, left office a year ago as markets pushed Italy to the brink of financial collapse.
The Milan benchmark MIB index was down 3.6 percent in the early European afternoon, with trading halted in the shares of two banks, Monte Paschi and Banca Popolare di Milano, after they fell by their maximum daily limit.
The yield gap, or spread, between Italian 10-year sovereign bonds and equivalent German securities, the European benchmark for safety, grew to 3.61 percentage points Monday from 3.25 points late Friday, suggesting that investors were growing more wary of holding Italian debt. Italian 10-year bonds were trading to yield xxx by midday Monday.
A barometer of euro zone blue-chip stocks, the Euro Stoxx 50 index, fell 1.1 percent. The euro was little changed from its levels in New York Friday, at $1.2907.
“It’s as if a tank moved through” the market, said Mario Sechi, editor in chief of the Rome daily Il Tempo, speaking on Radio 24 on Monday morning. Like many Italian commentators, Mr. Sechi expressed reservations about Mr. Berlusconi’s decision to return to politics.
A dismal economic report Monday served as a reminder that despite Mr. Monti’s success with investors, the real economy continues to suffer. Italian industrial production fell a seasonally adjusted 1.1 percent in October from September, and by 6.2 percent from a year earlier, the national Istat statistics agency reported from Rome.
The coming Italian election “remains high on our list of tail risks for 2013,” Holger Schmieding, an economist in London with Berenberg Bank, wrote in a research note. “A Berlusconi campaign against ‘German austerity’ could potentially unsettle markets,” he noted, and possibly push Spain or Italy into a bailout and additional bond purchases by the European Central Bank to hold down borrowing costs.
Spanish bonds also came under renewed pressure following Mr. Monti’s announcement, with the risk premium demanded by investors for holding Spanish 10-year bonds rather than equivalent German bonds rising to 4.38 percentage points on Monday morning, from 4.16 points on Friday.
Luís de Guindos, the economy minister, warned that Italy’s political turmoil would have an impact on Spain. “When doubts emerge over the stability of a neighboring country like Italy, which is also seen as vulnerable, there’s an immediate contagion for us,” he said Monday morning on Spanish national radio.
Asked whether Spain would itself seek further European rescue funding, the minister instead said that “the help that Spain needs is that the doubts over the future of the euro be removed.”
Speaking ahead of the Nobel prize awards on Monday, the European Commission president, José Manuel Barroso, said that Italy had to “continue on the road of structural reforms.” The elections, Mr. Barroso said on Sky News, “must not be used to postpone reforms.”
David Jolly reported from Paris. Raphael Minder contributed reporting from Madrid.
Article source: http://www.nytimes.com/2012/12/11/business/global/11iht-eurozone11.html?partner=rss&emc=rss
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