Rumours of debt downgrade continue amid uncertainty

Bersani appearing unlikely to form new Italian government

Rumours of debt downgrade continue amid uncertainty

Rome, March 27 - Rumours of a downgrade of Italian debt continued to weigh on Italian financial markets Wednesday, one day before Pier Luigi Bersani, the head of Italy's center left, must report on his progress in forming a new government. Bersani has said he will report on Thursday to President Giorgio Napolitano on his progress in drumming up support to form a government, but the situation does not look positive. The uncertainty has weighed on Italy's main financial market, where the FTSE-Mib fell by 0.92% to close trading Wednesday at 15,353 points. The spread between Italian and German debt, an indicator of investor confidence in Italy's ability to deal with its ongoing economic woes, widened to 350 basis points, up from Tuesday's close of 321.6 basis points. Moody's, a key international rating agency, last July posted a rating of Baa2 on Italian debt, with a negative outlook. That means that it would take little for Moody's to lower Italian debt to "junk" status - particularly if the political situation turned chaotic. Bersani was handed a government-formation mandate last Friday by the president after emerging from elections late February with a majority in the House but not in the Senate, leaving a hung parliament. He has spent the past week meeting with parties in an effort to forge a working coalition, even though that seems increasingly unlikely given the refusal to compromise by the anti-establishment 5-Star Movement (M5S) of Beppe Grillo.

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