Italian spread soars, markets slump on Monti announcement

Bonds under pressure, Milan stock market loses 3.68%

Italian spread soars, markets slump on Monti announcement

(see related stories) Rome, December 10 - Italian state bonds came under intense pressure and stock markets throughout Europe suffered big losses in early trading on Monday after Premier Mario Monti said at the weekend he would resign when the 2013 budget law is approved. The announcement came after ex-premier Silvio Berlusconi's People of Freedom (PdL) party said it had stopped backing Monti's administration and the media magnate said he would run for a fourth term at the helm of government in upcoming elections. The spread between 10-year Italian bonds and the German benchmark soared almost 40 basis points to reach 362, with a yield of 4.87%. The spread, a barometer of Italy's borrowing costs and of investor confidence in the country's ability to weather the eurozone crisis, had closed at 323 points with a yield of 4.5% on Friday. The Milan stock exchange suffered the continent's biggest losses in morning trading on Monday, with the FTSE Mib index 3.68% down after almost three hours of trading. Bank stocks were hit especially, with Intesa Sanpaolo losing 7% and Unicredit 6.09% down. Concern that political uncertainty in Italy could worsen the eurozone crisis was seen in all of Europe's main money markets. The Madrid stock exchange lost 1.98% of its share value. The Frankfurt and Paris exchanges were 0.58% and 0.67% down respectively. London lost 0.31%. German Finance Minister Wolfgang Schaeuble said that Berlin did not expect "any destabilisation in the eurozone" but it did "expect Italy to keep going forward by respecting its European commitments". However, his counterpart in Madrid, Luis de Guindos, expressed concern. "When doubts emerge about the stability of a neighbour country like Italy, which is perceived as vulnerable, the contagion is transmitted between us immediately," de Guindos said.

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