Italian stock market takes huge hit as 2% is wiped off following shock resignation of Prime Minister Monti
18:48 GMT, 10 December 2012
Mario Monti, the unelected Italian Prime Minister, credited with restoring the country's financial credibility shocked the markets by announcing he will stand down once the 2013 budget is approved, probably later this month
Italy was hammered in the financial markets today in reaction to the imminent exit of prime minister Mario Monti.
The stock market lost more than two per cent, while Italy’s 10-year bond yield – how much the government pays to borrow – soared to 4.8 per cent.
Mr Monti has been credited with restoring financial stability to Italy and expected to remain in office until next April. However, he will now go once the 2013 budget is approved, probably later this month.
His decision followed the announcement by prime minister Silvio Berlusconi that he will run for office again next year. The elections will now take place earlier than expected.
The resignation sent shockwaves across the eurozone. Spain’s finance minister Luis de Guindos said: ‘When there are uncertainties about the stability of a neighbouring country such as Italy, that immediately affects us.’
German foreign minister Guido Westerwelle said any move to water down the reforms imposed by Monti ‘would bring new turmoil not only to Italy but also to Europe’.
Italy’s 10-year bond yield – the amount the government pays to borrow – hit a two week high above 4.8 per cent while the Spanish yield rose to 5.6 per cent.
Bank shares across Europe were also on the slide and the Italian stock market fell 2.2 per cent.
Jane Foley, a currency strategist at Rabobank, said: ‘The resignation of Italy’s technocrat prime minister has re-awakened fears of a return to old style political theatre in the country.’
Silvio Peruzzo, an economist at Nomura, said: ‘Markets have grown too complacent about Italy.’
The Italian economy is trapped in its fourth recession for 10 years and has barely grown over the last decade.
Mario Monti's (left) resignation could pave the way for the return of scandal-hit former leader Silvio Berlusconi (right) who said he will seek election to run the country for a fourth time despite being forced to quit last year
The Organisation for Economic Cooperation and Development warned it faces another year of decline in 2013 – with GDP down 1 per cent following a 2.2 per cent in 2012.
The national debt – the largest in Europe – is set to top 130 per cent of GDP in the coming years as the country struggles to get a grip of the public finances.
Monti was appointed prime minister last year to replace Berlusconi and rescue Italy from financial ruin.
He had planned to serve until April 2013 but decided to stand down early after Berlusconi’s party last week withdrew its support for the unelected government.