Prospects of a political crisis in Italy sooner than expected - after Prime Minister Mario Monti said he intends to resign early - are expected to drive up Rome's borrowing costs and tensions in the euro zone after months of calm on the bond market.
Monti's surprise announcement on Saturday that he intended to resign after the approval of next year's budget raised the prospect of an election in February, weeks before the end of his term in April, and heightened the uncertainty over who will succeed him.
Bankers and analysts say the biggest political risk is that former Prime Minister Silvio Berlusconi could tap into growing disenchantment with the structural reforms championed by Monti to make a comeback.
"The key concern among investors is not the early elections but the outcome of such an electoral contest," said Wolfango Piccoli, head of Europe practice at global political risk research firm Eurasia Group.
"A fragmented parliament is likely to emerge, leading to the creation of a patched-up coalition government whose ability to push ahead with the required structural reforms will be severely limited," he added.GREECE:
Greek Debt Buyback Participation Still Short Of Target After Deadline
The tension over the Greek buyback, which was supposed to be completed on Friday with satisfactory terms, i.e., holders of more than EUR30 billion of new bonds tendering (at prices between 30 and 40 cents on the euro), is rising following a report from Kathimerini that roughly EUR25-26 billion has been accounted for, short of the formal target needed to hit the deleveraging goal.THE EUROPEANS ARE STILL TREADING WATER, AND - DUE TO THE RECESSION IN EUROPE - THE WATER IS RISING AND GETTING MORE TURBULENT.
THE WEIGHT OF HOLDING THE EURO UP WILL CAUSE EUROPEANS TO DROWN.