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Deadlocked Italy Vote Weighs On Markets

posted 26 Feb 2013, 05:12 by Mpelembe Admin   [ updated 26 Feb 2013, 05:14 ]

Analysts fear deepening economic woes after Italian voters fail to choose a clear winner in parliamentary elections.

ROMEITALY (FEBRUARY 26, 2013) (REUTERS) -  Markets across Europe fell sharply on Tuesday (February 26) after the Italian election results produced a political stalemate in a country fighting to keep its economy under control.

Italian government bonds fell sharply and stocks followed, after inconclusive elections left Italy facing political deadlock and rekindled fears of a euro zone debt crisis.

"It's going to spread in Europe as we saw yesterday when it also spread to Wall Street when the news that there wasn't going to be a clear majority also affected Wall Street, so it's going to be, I'm not going to say global, an almost global negative effect. The hope is that it's only going to last a few days and eventually Italian politicians are going to be able to resolve this uncertainty with a great sense of responsibility," Giuseppe Ragusa, an economist from Luiss University told Reuters TV.

A huge protest vote on Monday (February 25) by Italians enraged by economic hardship and political corruption pushed the country towards instability, with no coalition likely to be strong enough to form a government.

"I am sorry for the words but there will be a huge mess. This is just not governable. This government cannot govern," Rome resident Angelo said.

Others were worried by the electoral success of the anti-establishment 5-Star Movementled by comic Beppe Grillo

"It's a real problem because the 5-Star Movement is really anti-European and he got a lot of voted and that's worrying," added Valeria Giordana.

Italy's messy vote, which gave a majority to the centre-left in the lower house but no clear control of the Senate to any party, sent shockwaves across the main euro zone markets, dragging Paris and Frankfurt down and pulling the euro to a seven-week low against the dollar.

A gridlocked parliament will dismay investors hoping for strong leadership to lead the euro zone's third largest economy through a deep recession, rising unemployment and a massive public debt.

"Every indicator of market stress on Italy is going up sharply. The cost of insuring Italian debt against default has also risen and it's not just in Italy, because obviously this is spreading abroad and stock markets are down throughout Europe because of the Italian elections," Reuters Chief Economy Correspondent, Gavin Jones said.

Traders and analysts said the divided parliament and the massive surge of what they see as an anti-austerity vote embodied by the meteoric rise of comedian Beppe Grillo's5-Star Movement and by the success of Silvio Berlusconi's conservative bloc was "the worst possible outcome" for markets.