The imminent end of Prime Minister Mario Monti’s government Monday fueled the largest increase in Italian borrowing costs in four months and threatened to open a new front in Europe’s efforts to deal with its economic problems.
Led by plunging bank shares, the country’s main stock index, the FTSE MIB, was down 2.5 percent in afternoon trading. At the same time, the interest rate on the government’s 10-year bond — an indicator of how risky investors consider a country’s ability to pay down its debt — rose 0.33 percentage points to 4.8 percent.
Monti was tapped by Italy’s president to lead the country in late November 2011 after his predecessor, Silvio Berlusconi, resigned, having lost the confidence of international markets in his ability to save the country from a Greek-style debt crisis.
Monti, a respected economist and former European Union commissioner, won back a degree of international credibility for the country through a series of tax increases and fiscal policy changes that were deeply unpopular at home.
On Saturday, Monti said he decided to resign after Berlusconi’s political party withdrew its support last week.
The looming Italian election campaign is expected to put EU’s budget policy up for review in the 27-country area’s fourth-largest economy.