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Monday, December 10, 2012

Italian election means new stress for eurozone





[...] Italy's Prime Minister Mario Monti unexpectedly announced he was going to resign, pulling the plug on a government that had boosted confidence in the country's ability to manage its debts.

The prospect of a return to a shaky government and finances has suddenly put new strains on the leaders of the 17-strong group of European Union countries that use the euro and their efforts to bottle up the region's debt and economic crisis.

Greece faces skepticism that it can keep paying its debts despite €240 billion in bailouts and Spain is still weighing whether to ask for a rescue from the eurozone's bailout fund.

Since it took office in November 2011 — after markets lost confidence in Premier Silvio Berlusconi's half-hearted attempts at reform — Monti's 13-month old government has managed to lower Italy's borrowing costs in the bond markets — albeit with help from the European Central Bank and its offer to buy short-term debt.

The bond purchases would have to be preceded by a formal request for financial help from the European Stability Mechanism, the eurozone's bailout fund.

[...] if debt costs continue their rise, some think that could be the spur Italian politicians to move forward with pro-growth steps such as reducing legal protections against layoff for established workers.

Raj Badiani at IHS Global Insight said high bond market interest costs could "force the Italian political classes to refocus on the actions needed to push away intensifying" government debt pressures.


READ THE ORIGINAL POST AT www.sfgate.com