If anyone thought Italian Prime Minister, Silvio Berlusconi’s, pledge to resign would bring stability to European markets, it appears they were mistaken.
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On Wednesday, European stocks fell after a short-lived rally.
By mid-day, GMT, the pan-European FTSEurofirst300, was down around 1.8%. And banking giant, HSBC, lost nearly 6%.
Greece is still deciding on its new Prime Minister for a power-sharing government agreed to on Sunday. Markets fear Italy has now joined it in being politically unstable at a time of deep financial crisis.
“What we need in Italy, and in Greece, is a stable government. In Greece we will have real actions and therefore we will face another instability situation in the next weeks. The same can happen in Italy, too, so the markets are very concerned about the situation.”
Traders in Milan have every reason to eye their screens nervously. On Wednesday, Italian banking stocks fell, driving the benchmark index down more than 3% by lunchtime.
Italian bond yields – the amount of interest the country must pay those who buy its debt – have risen above 7% for 10-year bonds. By comparison, Britain pays 2.2%.
Many analysts believe the Italian yield level is dangerous and unsustainable.
Italy is under pressure to cut its huge debt by making economic reforms. Silvio Berlusconi had been seen as an obstacle to this.
But the prospect of his departure, and elections to follow, has done little to extinguish market anxiety.
Bottom line: European stocks have dropped following a short-lived rally sparked by Italian Prime Minister Silvio Berlusconi’s pledge to resign. And Italian bond yields climbed to levels thought unsustainable for the country.