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News Analysis: Italian markets finally fall in wake of key Greek vote

06-19-2012 05:08 BJT

By Eric J. Lyman

ROME, June 18 (Xinhua) -- An improvement in investor sentiment Monday in Italy was short lived, as renewed fears about the eurozone's survival overcame an initial sigh of relief that came after Greek voters narrowly voted to support European Union bailout efforts.

Greeks voted on Sunday in an election that was cast as a vote over the country's future as part of the 17-member eurozone.

When parties in favor of continuing with the bailout process pulled ahead Monday, Italian markets responded in a positive way, sending secondary market bond yields lower and stock prices higher. But soon, those gains were reversed amid fears that many more obstacles remain.

"There has been a kind of thought in Italy for some time that as long as Greece remained standing Italy would be OK because they were worse off than we were," said Antinio Mastroberardino, an economic analyst with the investment bank division of Banca Monte dei Paschi di Siena.

"This vote means that Greece would live to fight another day, which was a good thing for Italy -- at least psychologically. But on a real level, the fundamental situation is unchanged."

The fundamental situation is that even with the Greek vote, the economic situation there remains precarious, and that Spain also remains on the edge of default, with borrowing costs in that country surging and its banks wallowing in debt. Italy's economy is slow-growing and consumer confidence remains low, due in part to growing opposition to the government's reform process.

In trading Monday, the blue chip index on the Italian Stock Exchange finished the day 3-percent lower, and investor jitters sent the yield on Italian benchmark 10-year bonds 2.2 percent higher, ending the day at 6.06 percent rising above the important 6-percent barrier just one session after dipping below it for the first time in 10 days on Friday. Both indicators started the session stronger, in reaction to the news from Greece.

"The economic prospects in Italy remain clouded and the investor sentiment reflects that," said Angelo Paulino, an analyst with ABS Securities. "It's just made worse by the overall situation in Europe."

The situation in Italy was reflected across Europe and even beyond. Markets in most big European countries lost ground Monday, and trading in New York also opened weaker on nervousness after the Greek vote failed to spark more sustained rallies in Italy, Spain, and elsewhere.

Last week, Spain agreed to terms for a 100 billion euro bailout of its banking system, making it the fourth European country after Greece, Ireland, and Portugal to seek bailout cash. Italy is now seen as the most troubled economy in Europe that has not asked for a bailout.

Pollsters say that Italians are mixed about whether or not Italy should seek bailout money, with some saying it could help ease the pain associated with the ongoing austerity reforms that have raised taxes, pushed for greater tax compliance, and dramatically reduced government spending. But a slight and slowly shrinking majority still takes pride in the fact that the troubled economy has not needed to ask for a handout.

"About one in three Italians say they would support asking for outside assistance if that meant the reforms would be easier, and a little more than half say they don't think a bailout would be a good idea," said Maria Rossi, co-director of the polling firm Opinioni. "But over the course of several weeks, the tide is slowly shifting toward the side that thinks that under certain circumstances some help might be necessary."

Opinioni also reported that support for the technocrat government of Prime Minister Mario Monti continues to slip, remaining below 40 percent in the lastest poll, compared to double that amount of support when he first took power last November. With less support, the government will find its already unpopular efforts to avoid falling victim to Europe's debt crisis may be even more difficult to put into force going forward.

Editor:Wang Shuo |Source: Xinhua

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