Italy Vote Sends Shudders Through Markets

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EUROPEAN stock markets fell sharply yesterday, with the election result in Italy producing no government, but marking a massive vote against austerity.

Italy’s FTSE MIB index fell 4.4%, while London’s FTSE 100 fell 1.3% and share markets in Frankfurt and Paris fell by more than 1.5%.

The yield on Italian government bonds rose sharply, showing that the markets are wary of lending to Italy.

Banks were the biggest fallers, with shares in major banks across Europe down more than 4%.

Italy’s public debt stands at 127% of GDP and is expected to rise to 128% in 2013 – the second highest level in Europe after Greece.

In the election for the Chamber of Deputies, Pier Luigi Bersani’s centre-left Democratic Party-led bloc got 29.54% of the vote and gets 340 seats as the winning bloc, Silvio Berlusconi’s centre-right People of Freedom Party-led bloc got 29.18% of the votes, getting 124 seats, Beppe Grillo’s anti-austerity Five Star Movement received 25.55% of the vote and will get 108 seats, while outgoing prime minister Mario Monti’s Civic Choice movement got 10.56% and will have just 45 seats.

Bankers and financial commentators expressed deep concern over the result.

Giuseppe Fontana, professor of monetary economics at Leeds University Business School, warned Italian voters had sent a ‘chilling message’ to the markets and policy makers.

‘It is not difficult to speculate that this morning markets and policy makers are asking the big question – what is the future of the euro area?’

Georg Grodzki, head of credit research at Legal & General Investment Management, said: ‘Uncertainty is not good for confidence. It’s not bad enough for an immediate abrupt sell-off but it could well build over the next few months into some crisis.’

Ben May, European economist, Capital Economics, said: ‘The inconclusive outcome of the Italian election looks set to prompt a renewed bout of market pressure which may eventually force Italy to request a support package from the eurozone.

Open Europe, a Brussels-based think-tank, stated: ‘The majority of Italians voted for parties that explicitly oppose austerity and, in a major upset, the Five-Star Movement led by comedian Beppe Grillo – who has called for a referendum on whether the country should leave the single currency – received over 25% of the vote.

‘Outgoing Prime Minister Mario Monti’s list mustered less than 10% of votes in both houses.

‘Although Italians remain pro-EU, this election was a major blow for the Brussels cash-for-austerity consensus, and any plans for structural reform in Italy are likely to be put on ice.’

Ishaq Siddiqi, of ETX Capital, said that ‘the fact that Silvio Berlusconi managed to gain such an influence with his anti-austerity campaign means that we are likely to see a rise in civil unrest in Italy.

‘Italy is at present ungovernable and that may be the case for some time, so long as Italians are this divided on austerity.’