“European leaders demanded that euro members press on with budget cuts to end the debt crisis as Italy edged closer to a new election after an anti-austerity vote last week resulted in political deadlock.
Finance ministers from the 17-member single-currency bloc meet in Brussels today to discuss issues including a bailout for Cyprus. In Rome, a top aide to Democratic Party leader Pier Luigi Bersani said the country may need to hold another election this year after passing new electoral laws.
“Now in Europe, after the Italian election, it seems to be a case of either austerity and savings programs or growth, but that’s a completely false premise,” German Chancellor Angela Merkelsaid at March 1 event. EU Economic and Monetary Affairs Commissioner Olli Rehn echoed those comments this weekend, telling Germany’s Der Spiegel magazine that there’s no scope for the bloc to let up on budget discipline.
Italian political instability, after last week’s election ended in a four-way split, threatens to reignite concern about the deepening of the debt crisis. Voters in the bloc’s third- largest economy revolted against German-inspired austerity measures, handing the party of comedian-turned-politician Beppe Grillo more than 25 percent of the vote with its anti-spending cut message and a call for a referendum on euro membership.
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Italian 10-year bond yields climbed to a three-month high last week, jumping 34 basis points to 4.79 percent. Yields rose 6 basis points to 4.84 percent as of 10 a.m. in Berlin.
Still, Spanish bonds rallied last week along with Greek and Portuguese securities on speculation that the European Central Bank, which eased a market panic last year with a pledge to buy sovereign debt, will maintain control over the three-year-old debt crisis.
Any “significant” attempt to unravel Prime Minister Mario Monti’s reforms would risk “serious turmoil across Europe,” Holger Schmieding, chief economist at Berenberg Bank in London, said in a note today. “Our base case remains that Brussels, Frankfurt and Berlin jointly with the bond vigilantes will simply leave Italy no choice but to stay on the straight and narrow — or at least to not go astray for very long.” …”
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