Parties May Struggle To Form Government In Italy
The ECB bond purchase program has been given most of the credit for the easing of the eurozone debt crisis in recent months. Before the ECB offered Sept. 6 to buy unlimited amounts of government bonds issued by a struggling country, Italy and Spain were facing borrowing costs that would have proved crippling in the long term. The fear was that these two big economies â¿¿ the third- and fourth-largest among the 17 European Union countries that use the euro â¿¿ would be pushed into defaulting on their debts.
No bonds have been bought under the ECB plan, but the mere offer reassured investors and sent borrowing costs lower for debt-plagued countries such as Italy and Spain.
"Basically investors are taking this on faith," said Simon Tilford, chief economist at the Center for European Reform in London.
The Italian result risks undermining that faith."It would be very hard for the ECB to wade into the market and buy substantial quantities of Italian debt if there is political gridlock in Italy and a broad based rebellion against the austerity strategy," Tilford warns. The two-day election on Sunday and Monday was a clear rejection of the previous government of financial and economic experts led by Mario Monti. That government won support from eurozone leaders by raising taxes, cutting spending, and narrowing the deficit. But the cost to Italians has been high, with the country mired in recession and unemployment on the rise. Austerity opponents argue that cutting government spending lowers growth and makes debt ultimately harder to repay. Pier Luigi Bersani and his center-left allies appeared on Tuesday to have won a narrow victory in the lower house of parliament, but the Senate looks split with no party in control. Silvio Berlusconi, the former Italian premier whose center-right coalition did better than expected, is a key player since his coalition is now the second-biggest bloc in the upper chamber.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV