Italy snap election fears spook global financial markets
May 30, 2018
The euro has fallen to its lowest value against the dollar in almost a year. Investors fear Italy is heading toward fresh elections by the end of the summer, after populist parties there failed to form a government.
Image: picture-alliance/chromorange/R. Peters
Advertisement
The euro and US and European stock markets fell on Tuesday amid fears that political uncertainty in Italy could lead to broader instability in the eurozone.
Italy faces the prospect of fresh elections after populist anti-establishment, euroskeptic parties failed to form a government.
The euro sank to its lowest value against the dollar since July, dropping to $1.1531 from $1.1669.
Stocks across Europe took a hit, with Italy's benchmark stock index falling 2.7 percent, the German DAX falling 1.5 percent, with both Britain's FTSE 100 and the French CAC 40 falling 1.3 percent.
The yield on 10-year Italian government bonds increased significantly as investors, spooked by the political uncertainty, dropped them in favor of safer assets. It increased to 3.10 percent from 2.69 percent.
Reflecting the move to safer assets, the yield on US government bonds fell to 2.78 percent, the lowest percentage since the beginning of April, from 2.93 percent.
Stocks in the US were also down, with the S&P 500 index dropping 31.47 points, or 1.2 percent, to 2,689.86 and the Dow Jones industrial average losing 391.64 points, or 1.6 percent, to 24,361.45.
Japan's Nikkei 225 Index lost 1.52 percent to end at 22,018.52 on Wednesday.
Italy's populist government: Key players
After months of negotiations, Italy finally has a government with Giuseppe Conte at the helm. Conte's swearing in ended weeks of turmoil that rocked financial markets, but concerns among Italy's EU partners remain.
Image: picture-alliance/ROPI
Conte: Novice at the helm
Giuseppe Conte, a little-known law professor with no political experience, was picked by the League and 5-Star Movement (M5S) as their candidate for prime minister. He was forced to temporarily give up his leadership bid after the parties' cabinet selection was initially blocked. However, after the two parties struck a deal with President Sergio Mattarella, Conte was eventually sworn in on June 1.
Image: picture-alliance/dpa/S. Lore
Mattarella: President with the final say
President Sergio Mattarella faced calls for his impeachment after he prevented the populist alliance from taking office. He singled out its choice for finance minister, Paolo Savona, warning that an openly euroskeptic minister in that position went against the parties' joint promise to simply "change Europe for the better." After the parties agreed to replace Savona, Mattarella gave the go-ahead.
Image: Getty Images/AFP/A. Solaro
Di Maio: Anti-austerity advocate
M5S chief Luigi Di Maio secured his party 32 percent of the vote in the March election. With the populist M5S-League coalition in power, Di Maio assumed the role of joint deputy prime minister and took over the economic development portfolio. The M5S leader has come under fire for his anti-immigration rhetoric, including calling rescue missions to save migrants from drowning a "sea-taxi service."
Image: Getty Images/AFP/T. Fabi
Salvini: 'The Captain'
Matteo Salvini is the leader of the anti-immigrant, euroskeptic League, which won 17 percent of the vote in the March election. A former MEP, he and his party have no experience in governing. Salvini has taken on the position of interior minister within Conte's Cabinet. Known for his hostile rhetoric toward immigrants and the EU, Salvini once described the euro a "crime against humanity."
Image: picture-alliance/AP Photo/A. Di Meo
Savona: Anti-euro radical
Paola Savona, initially tipped to lead the Finance Ministry, has called the euro a "German cage" and said that Italy needs a plan to leave the single currency. The 81-year-old's stance won him the backing of most Italian lawmakers but that wasn't enough to stop his appointment being vetoed. In his place steps Giovanni Tria, an economics professor without any previous government experience.
Image: Getty Images/AFP/F. Frustaci
Cottarelli: Temporary caretaker
Carlo Cottarelli was set to become Italy's caretaker prime minster after the M5S-League alliance failed to have its controversial cabinet picks approved. The former IMF economist's time in the spotlight was short-lived, however. Political uncertainty in Italy rocked Europe's financial markets and prompted Mattarella to swiftly renegotiate and approve Salvini and Di Maio's governing coalition.
Image: picture-alliance/NurPhoto/S. Lore
Berlusconi: Vanquished enabler
Silvio Berlusconi (right) and his Forza Italia entered a four-party electoral alliance including League in the March election that secured the bloc 37 percent. Berlusconi is now upset at his right-wing ally Salvini after the League leader moved to work with M5S. Berlusconi has said he would act as a "reasonable and scrutinizing opposition."
Image: picture-alliance/dpa/ANSA/E. Ferrari
7 images1 | 7
'Work things out within the eurozone'
A senior official in the US Treasury Department, speaking on the condition of anonymity, told reporters that Italy should work to resolve its current political crisis while staying within the eurozone.
"I think it would be better if they were to work things out within the eurozone without making significant changes there, and certainly the Italians have the opportunity to do that," he said. He added that he saw no immediate danger to the stability of the wider financial system.
Why Italy matters: Italy is the the eurozone's third largest economy. It has struggled to grow since the 2007-2009 financial crisis and has an enormous debt pile. Investors are worried that euroskeptic parties could form a future government that would abandon the euro or commit to spending that would cause wider instability in the bloc.
What's next? The country is likely to hold fresh elections by the end of the summer after Italian President Sergio Mattarella blocked efforts by two euroskeptic parties — the populist 5-Star Movement (M5S) and the right-wing League — to form a coalition government. Mattarella has tasked former economist Carlo Cottarelli with forming a caretaker government, but it is unlikely to win necessary approval from the Italian parliament.
A veiled warning for Italy
05:12
This browser does not support the video element.
Not just Italy: Other challenges are also putting a strain on global markets, including international trade tensions over US protectionist tariffs and uncertainty about the future of the 2015 Iran nuclear deal, along with nuclear tensions between the US and North Korea.
