The Italian Job

by Bill McBride on 12/10/2012 09:10:00 AM

From the Financial Times: Monti decision to go rattles markets

Italy’s government borrowing costs jumped and its stock market fell sharply on Monday after Mario Monti’s weekend decision to resign as prime minister threatened to send a new shudder of uncertainty into the eurozone’s most vulnerable economies.
excerpt with permission

According to Bloomberg, the yield on the Italian 2-year increased sharply to 2.32%, and the 10 year yield increased to 4.8%. A large jump, but still lower than a few months ago.

From the NY Times: Next Act in Italian Drama: Exit Monti the Technocrat, Enter Monti the Politician?

Mr. Monti’s surprise announcement on Saturday raised the prospect of more political uncertainty and market turmoil for Italy, Europe’s fourth-largest economy, in what is expected to be a gloves-off political campaign. But it also increased the possibility that Mr. Monti might run as a candidate â€" a shift from the role of an apolitical leader â€" who is open to governing if no clear winner emerges from elections expected as soon as February.

Three years into Europe’s debt crisis, the new developments in Italy underscored the clash between the economically sound and the politically sustainable. While Mr. Monti, an economist and a former European commissioner, has reassured investors and helped keep Italian borrowing rates down, the tax increases and spending cuts passed by his Parliament have eroded lawmakers’ standing with voters.