Financial markets in Europe have moved higher on hopes that two months of political deadlock in Italy may be breaking. The re-election of Giorgio Napolitano for a second term as Italian president suggests that the main political parties may be nearer a deal to form a government.
Napolitano was eventually re-elected, despite lengthy squabbles between some of Italy’s main political groups which ultimately reached agreement. Napolitano has stressed that he favours the formation of a new government over potentially destabilising new elections.
An inconclusive vote by Italy’s electorate in February split parliament between three litigious parties and has hampered efforts by the eurozone’s third-largest economy to escape from a deep recession. Business leaders have been urging politicians to settle their differences and take action to stem rising bankruptcies and spiralling unemployment.
Following the news, the yield on Italian two-year debt hit a record low of 1.267% and that on 10-year sovereign debt – the benchmark for Italy’s ability to borrow – also rose in value, pushing down the yield to 4.1% from 4.22% previously and compared with 7%-plus yields that forced ex-prime minister Silvio Berlusconi from office in November 2011.
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