Italy’s borrowing costs over ten years drew closer to five percent after a decision by Prime Minister Mario Monti to step down early left the country’s political future unclear, hurting riskier euro zone debt.
Monti said on Saturday he would resign once the 2013 budget was approved, raising questions over who will take the reins of the euro zone’s third largest economy at a time when it remains a focus of the region’s three-year debt crisis.
His announcement, potentially bringing forward an election due early next year, came after former prime minister Silvio Berlusconi’s party withdrew its support for the government — and Berlusconi himself said he would run to become premier for a fifth time.
Justin Knight, European rates strategist at UBS says:
Berlusconi’s actions have created a degree of uncertainty in the market with regards to the Italian political scene. Part of the problem here is that investors outside of Italy are not positioned very well for this.
He was referring to the recent bout of buying in Italian debt, mainly thanks to the European Central Bank’s promise that it will provide central bank support – should a country decide to ask for aid first.