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Italy political chaos knocks stocks

Monday, Sep 30, 2013 - 01:58

Italian government bonds and shares dive after Silvio Berlusconi pulls the rug from under Enrico Letta's coalition government by ordering five centre-right ministers to quit. Joanna Partridge asks whether the latest crisis is becoming critical

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It's only been a few months since Italians went to the polls. But it looks like they could be heading back there again soon - largely thanks to former Prime Minister Silvio Berlusconi. At the weekend he ordered five ministers from his PDL party to resign, leaving the coalition government - under Enrico Letta - unable to function. Berlusconi's facing eviction from parliament after a conviction for tax fraud. He's fighitng for his political life. His actions have certainly worried investors - Italian government bonds and shares slid on Monday. Ishaq Siddiqi from ETX Capital says another election won't solve anything. SOUNDBITE: Ishaq Siddiqi, Market analyst, ETX Capital, saying (English): "Back in April we had such an inconclusive result, a lot of fear in the market about what was going to happen with Italy. It's the third-largest bond market in the world, it is absolutely imperative for Italy to stay in the euro zone. The removal of Italy from the euro zone would essentially mean the end of the euro zone itself. So I think the bigger talking point here is are we going to see a repeat of what we saw in April, this inconclusive political paralysis which gripped the market." Italy's President Giorgio Napolitano met with Letta on Sunday. He seems determined to avoid an election by finding a new parliamentary majority . Letta will hold a confidence vote on Wednesday. But it's uncertain how much parliamentary backing he still has. And he'll need support from Berlusconi's party. Edward Hadas from Reuters Breaking Views thinks the turmoil could be good for Italy in the long run. SOUNDBITE: Edward Hadas, Economics Editor, Reuters Breaking Views, saying (English): "Italy needs a good crisis, a helpful crisis to get itself on track after many years of truly disfunctional politics, so far we have a perfect example of disfunction Italian politics and not just at the Berlusconi level." But ratings agency Fitch has already warned prolonged uncertainty might lead to a downgrade. And there are fears the turmoil could spread beyond Italy's borders. That's something a euro zone showing signs of recovery could do without.

Italy political chaos knocks stocks

Monday, Sep 30, 2013 - 01:58

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