Asian markets tumbled this morning as news the Italian election would result in political gridlock raised fears of a fresh debt crisis in Europe.
Early election results showed that pre-election favorite Pier Luigi Bersani, who had promised to continue outgoing prime minister Mario Monti’s fiscal and austerity reforms, has won Italy’s lower house. But Bersani’s center-left coalition failed to win the majority in the Senate that he would need to govern. He now faces the challenge of trying to negotiate with former premier Silvio Berlusconi’s center-right bloc. Berlusconi had campaigned heavily against Monti’s belt-tightening measures.
By 10.30 p.m. EST, Japan’s Nikkei 225 index had fallen 1.4% while Australia’s S&P/ASX 100 had slipped 0.75% and Hong Kong’s Hang Seng Index was down 0.6%. This was part of a global selloff that saw the S&P 500 record its biggest one-day drop since November on Monday.
Bersani suffered thanks to a huge protest vote for comedian Beppe Grillo’s anti-establishment 5-Star Movement. While Bersani’s coalition won the lower house overall, Grillo’s party actually collected more of the vote than Bersani’s Democratic Party by a whisker. The 5-Star Movement won 25.5% against the Democratic Party’s 25.4%.
The election result was set to determine how Italy, the euro zone’s third largest economy, will move forward with implementing the necessary reforms to reverse its long recession and rising unemployment. Yesterday, Italian shares and bonds were rallying on hopes Bersani would win both houses, meaning Italy would stay on its course of implementing Monti’s recovery scheme.
But a split parliament may lead to political and economic paralysis as Bersani fails to gain enough support in the Senate to push his plans forward.
That has even raised concerns that Italy, which has Europe’s largest stock of public debt, could be in line for the next euro zone bailout.
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