prospect of political turmoil in Italy is spooking sovereign debt markets, pushing the yield on Italian bonds back towards the highs seen just before Ireland agreed to apply for a bailout.
With Italian prime minister Silvio Berlusconi facing a no-confidence vote tomorrow after thousands came out in protest against him over the weekend, investors are ready to flee the peripheral Eurozone country.
The yield on Italian 10-year bonds closed at 4.6 per cent on Friday, up 100 basis points in just over a week. Berlusconi could be toppled from power tomorrow after a run of scandals involving young women and charges of corruption, with his fate riding on a knife-edge vote in parliament.
But his political opponents said that even if he wins the vote, his authority will not be secure. Gianfranco Fini, who withdrew his support from Berlusconi in July, said: “If the no confidence motion does not pass, we will have a government that's just trying to survive. That’s not stability, that’s vegetating.”
It means that he might have trouble pursuing the over-arching reforms required to improve Italy’s competitiveness and deal with its public debt.