Forex News
December 10, 2012 @ 9:06 am

Italian Prime Minister Monti’s surprise resignation sends euro lower

Italy’s Prime Minister Mario Monti’s surprise announcement of his early resignation shocked markets and sent the euro tumbling to a two-week low against the dollar. The news triggered fears of a fresh bout of euro zone uncertainty as Italy grapples with debt. Investors fear that a new government may overturn Monti’s measures set in place to deal with the country’s burgeoning debt.

Monti said on Saturday that he intends to resign as soon as Italy’s parliament passed a pending budget bill later this month. Meanwhile, former Prime Minister Silvio Berlusconi announced his intentions to run for Prime Minister again saying it is “out of a sense of responsibility”. Martin Schulz, the president of the European Parliament, called Berlusconi’s decision to return to politics “a threat for Italy and Europe, which need stability,” the Italian news agency Ansa reported.

Many investors and European leaders worry that many of Mr. Monti’s overhauls, even ones that have not yet been approved by Parliament — could be undone by future Italian governments, especially if Berlusconi returns  to power.

Yields on Italian government debt surged in reaction to the news from Italy. The 10-year Italian government bond rose 24 basis points to 4.77 percent. European stock markets opened lower on Monday, with Italian banks leading the decline. The Stoxx Europe 600 index dipped 0.2 percent to 278.58. Italy’s FTSE MIB index  tumbled 2.4 percent to 15,327.18 with shares of Banca Monte dei Paschi di Siena SpA  dropping 6 percent, shares of Intesa Sanpaolo SpA off 5.5 percent and UniCredit SpA  down 5.4 percent.

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