Two leading European Union officials have been saying that Italy isn't as bad as we think it is. European Central Bank policymaker Ewald Nowotny said:
Of course everyone's a bit nervous. (...) One should keep things in perspective. I do not think there will be fundamental change in the politics in Italy because there are just economic necessities that you have to follow
There was a bond auction yesterday that went quite well. One shouldn't overdo it.
The European Union's technocrat Monti was beaten by three other groups. It seems unlikely that the Italian people will accept anything but a fundamental change in Italian politics. While the outcome of the election is unclear, the rejection of Monti was not.
Olli Rehn, the vice-president of the European Commission is talking (watch live) and has suggested that Italy must continue along the same path. This looks unlikely to happen. The Institute for Fiscal Studies' John Chown writes:
The Eurozone has yet to solve its original defective structure. A sustainable monetary union needs arrangements in place to ensure each country maintains fiscal discipline, with clear provisions that each state is responsible for its own debts, and adequate arrangements for emergency inter-state transfers. Consequently, it is now accepted that fiscal union is necessary.
And the Italian people seem to have comprehensively rejected the measures necessary to bring closer fiscal union.