Milan plunges amid concern over government future

Spread between Italian, German bonds widens Monday on fears

Milan plunges amid concern over government future

Milan, August 26 - Milan's top stock exchange plunged dramatically Monday amid investors' fears that Italy's fragile coalition government could collapse over a controversy involving ex-premier Silvio Berlusconi. The FTSE-Mib fell by 2.10% to close at 16,977 points and broadcaster Mediaset - owned by Berlusconi - shed 6.25% over fears about Berlusconi's future. The ex-premier, who founded the centre-right People of Freedom Party (PdL) political party, is in a fierce dispute with Prime Minister Enrico Letta's centre-left Democratic Party (PD) over Berlusconi's future following his conviction on fraud charges. The PdL on Sunday warned that it would bring down the Italian government and force new elections if PD party members vote to expel Berlusconi from his Senate seat over his first-ever binding conviction for tax fraud. The two coalition partners are also arguing over the future of a despised housing tax which the PdL has vowed to eliminate. However, Finance Minister Fabrizio Saccomanni says the country cannot afford to forgo the revenues from the IMU. The uncertainly added to pressure on Italian bonds and helped to widen the spread between Italy's 10-year bond and its German counterpart. That closed at 249 basis points, up from last Friday's close of 239 basis points. The yield on Italian 10-year paper closed at 4.38%, up from the 4.33% yield last Friday. The spread between lending rates in the two countries is seen as an indication of investor faith in the Italian economy and its ability to cope with a lingering recession. On other European markets, Frankfurt's DAX gained 0.22% to close at 8,435.15 points, while Paris's CAC 40 was almost unchanged, losing just 0.06% to close at 4,067.13 points, and Spain's IBEX 35 fell by 0.42% to 8,649.90 points. In London, the FTSE index of leading British shares was closed Monday for the summer bank holiday.

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