Hopes of End to Italy’s Political Deadlock Cheer Business

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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