Berlusconi To Step Aside?
Berlusconi denies that he is intending to resign. Nevertheless markets reacted positively to the speculation that he may be forced to step down. A vote tomorrow on the public finances may leave the centre right coalition facing early elections.
After starting lower, the main European markets recovered much of the lost ground despite the fact that Italian 10 year bond yields rose to the highest levels seen since the introduction of the Euro. At over 6.5% yield the cost of servicing a debt amounting to 120% of total output puts in doubt the ability of Italy to manage its debt. By contrast the yield on German debt is around 1.75% and it is issued, of course, in the same currency – the Euro. The difference represents the default risk.
That equity markets brushed off some of the bad news to rally on speculation of Berlusconi’s resignation must send a message!