Major European stock exchanges plunged Wednesday and Italy's borrowing costs jumped, as the long shadow of the continent's debt crisis consumed the Greek and Italian governments.
Key stock markets in London, Paris and Frankfurt all slid more than two percent, in part due to the political uncertainty in Athens and Rome.
Greek officials struggled for a third day to form a coalition government to carry out unpopular austerity measures. Prime Minister George Papandreou assured French President Nicolas Sarkozy that formation of an interim government is imminent.
But there was no announcement on a successor to the Greek leader. The expected choice of economist Lucas Papademos seemed less certain after Mr. Papandreou's talks with opposition leader Antonis Samaras about the shape of a new government ended indecisively early Wednesday.
The Italian government faced record-high borrowing costs the day after Prime Minister Silvio Berlusconi said he would resign as soon as Parliament enacts budget cuts. The spending reforms are aimed at cutting the Rome government's massive debt in hopes of avoiding the need for an international bailout.
Interest rates on Italian government bonds topped 7 percent for the first time since the advent of the euro currency in 1999. That percentage rate is the threshold at which Greece, Ireland and Portugal all were forced to secure international bailouts in the last year and a half.
One opposition Italian lawmaker, Giuseppe Fiorini, said the country needs a government that can give Italy “international credibility,” something he said Mr. Berlusconi has not been able to do.
One government debt analyst in London, Jan Randolph of IHS Global Insight, said investor concerns about the safety of Italian debt will not abate “until a solid and stable government actually implements austerity and undertakes reforms.”
In Greece, Mr. Papandreou and Samaras have been locked in talks since Monday on who will lead a power-sharing government until early elections, tentatively scheduled for February 19, are held.
State-run Greek television had reported Tuesday that economist Papademos, the former vice president of the European Central Bank, would be named the country's interim prime minister. But other possible candidates for the post are reportedly under consideration as well.
The European Union demanded that both Mr. Papandreou's socialists and Samaras' opposition New Democracy party sign a written commitment to carry out the austerity measures as part of the debt-relief plan approved for Greece last month. Samaras balked at a written statement, calling it an insult to “national dignity” and insisting his verbal assent to the plan should be sufficient.
European finance ministers are waiting for the formation of a new government in Greece before deciding whether to grant the country a crucial $11 billion loan installment.
