Nov. 9 - European stocks have dropped following a short-lived rally sparked by Italian Prime Minister Silvio Berlusconi's pledge to resign, with Italian bond yields rising to levels thought unsustainable for the country. Andrew Potter reports.
If anyone thought Italian Prime Minister Silvio Berlusconi's pledge to resign would bring stability to European markets it appears they were mistaken. On Wednesday European stocks fell after a short-lived rally. By Midday GMT the pan-European FTSEurofirst300 was down around 1.8 percent, with banking giant HSBC losing nearly six percent. Greece still deciding on its new Prime Minister for a power-sharing government agreed on Sunday. Markets fear Italy has now joined it in being politically unstable at a time of deep financial crisis. Oliver Roth is from Close Brothers Seydler in Frankfurt. (SOUNDBITE) (English) OLIVER ROTH FROM CLOSE BROTHERS SEYDLER AG, SAYING: "What we need in Italy and in Greece is a stable government. In Greece we will have real actions and therefore we will face another instability situation in the next weeks. The same can happen in Italy, too, so the markets are very concerned about the situation." Traders in Milan have every reason to eye their screens nervously. On Wednesday Italian banking stocks fell, driving the benchmark index down more than 3 percent by lunchtime. Italian bond yields -the amount of interest the country must pay those who buy its debt- have risen above 7 percent for 10 year bonds. By comparison Britain pays 2.2 percent. Many analysts believe the Italian yield level is dangerous and unsustainable. Italy is under pressure to cut its huge debt by making economic reforms. Silvio Berlusconi had been seen as an obstacle to those. But the prospect of his departure and elections to follow has done little to extinguish market anxiety. Andrew Potter, Reuters