The imminent end of Prime Minister Mario Monti’s government fueled the largest increase in Italian borrowing costs in four months and threatened to open a new front in Europe’s crisis fight before a year-end summit.
Italian 10-year bond yields jumped 36 basis points to 4.89 percent at 12:18 p.m. in Rome, widening the difference between yields on German bunds of similar maturity by 38 basis points to 361 basis points. Italy’s benchmark FTSE MIB stock index fell 3.4 percent, while Germany’s DAX Index slipped 0.6 percent.
“Italy’s image has improved markedly thanks to the Monti government, and all that could be reversed,” Riccardo Barbieri, chief European economist at Mizuho International Plc in London, said in a research report today. Berlusconi “has repeatedly argued that the pros and cons of leaving the euro must be better analysed and considered.”
Berlusconi, who was sentenced in October to four years in prison for tax fraud, is free pending appeal. In an unrelated case, he is standing trial on charges of abuse of power and engaging a minor in prostitution, allegations he has denied.