telegraph.co.uk / By Szu Ping Chan, and agencies / 10:42AM GMT 10 Dec 2012
Italian stock markets plunged and borrowing costs shot up after Mario Monti announced that he would step down as prime minister in the coming weeks.
The FTSE Mib in Milan fell by as much as 3.5pc to 15,157.72 on Monday after the technocrat prime minister said he would resign as soon as crucial budget legislation was approved.
Italian borrowing costs also rose. The yield on 10-year government bonds climbed by almost 0.3 percentage points to 4.8147pc, while the cost of insuring Italian debt against default rose by 27 basis points to 285bps. This means that it now costs £285,000 a year to insure £10m of debt over five years.
“More volatility can be expected in the weeks running up to the election,” said Gavan Nolan, director of credit research at Markit.
The resignation also sparked a wider sell-off. Madrid’s IBEX 35 index fell 2.3pc, hit also by rising bond yields in debt-laden Spain. Luis de Guindos, the country’s economy minister, said: “Every time there are doubts … for example today in the case of Italy, when there are uncertainties about the political stability of a neighbouring country such as Italy, that immediately affects us.”
Mr Monti announced that he would resign early after Silvio Berlusconi’s party withdrew crucial support in parliament.