Q&A: Why Italian Election Has Shaken Investors
By DAVID McHUGH
FRANKFURT, Germany (AP) â¿¿ Italy's inconclusive election has rattled markets and raised the fear that Europe's crisis over too much government debt could flare again after several months of calm.
European stocks fell sharply Tuesday and Italy's borrowing costs climbed after voters rejected the austerity policies and reforms of the former Prime Minister Mario Monti.
Yet no political group won enough seats to control both houses of parliament. In the voting, a center-left alliance led by Pier Luigi Bersani won control of the lower house, barely beating the center-right alliance of former Prime Minister Silvio Berlusconi. Bersani's forces did not win control of the Senate upper house, not even with the help of a small group led by MontiMuch remains uncertain: how long it will take to form a government, whether it will be solid enough to pass legislation, and whether it would keep Monti's pro-growth reforms. If nothing works out, there could even be new elections. Here are questions and answers about why all that worries people elsewhere in Europe and beyond. Q: Why all the investor alarm? A: Above all, investors are afraid the eurozone will go back to where it was last July. Then, doubts about the ability of heavily indebted euro countries Spain and Italy to manage their debts raised the specter of a government defaulting on its bond payments and spreading financial turmoil across Europe. It was only when the European Central Bank offered to buy unlimited amounts of an indebted country' bonds that the crisis abated. Q: Are there other worries? A: Italy is an important partner in fixing the euro's deeper problems â¿¿ such as creating an EU banking supervisor that could strengthen the region's financial system. Having the third largest country politically paralyzed will slow down an already drawn-out process.
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