European Stocks Rally; Possible Breakthroughs in Greece, Italy

Posted November 10th, 2011 at 7:40 am (UTC-5)
Leave a comment

European financial markets rebounded in early trading on Thursday after signs of possible breakthroughs in the long-delayed formation of new governments in Italy and Greece.

Italian Prime Minister Silvio Berlusconi, who has promised to step down after parliament passes tough austerity measures, appeared Thursday to endorse the man widely seen as his replacement, leading economist Mario Monti.

A former European Union commissioner, Monti is expected to head a new government tasked with reducing Italy's $2.6 trillion debt.

Investors had feared that the embattled Mr. Berlusconi would be reluctant to follow through with his promise to step down, but it now appears that he could do so as soon as this weekend.

In Greece, a contentious power-sharing debate showed signs of life in its fourth day, as former European Central Bank deputy Lucas Papademos entered talks with political leaders on the formation of an interim government.

The unity government will aim to secure a new European bailout loan and ensure that Greece receives the next installment of its existing bailout, which it must receive within about a week if it is to avoid a catastrophic debt default.

Eurozone leaders have urged both countries to hasten with unpopular economic reforms aimed at saving them from bankruptcy, which would further destabilize the euro and fuel turmoil in the already unstable global financial markets.

Stocks had opened in negative territory across the globe following news that Italy's main borrowing rate on Wednesday soared past 7 percent – surpassing the rate that forced Greece, Ireland and Portugal to ask for bailout loans.

Italy is the eurozone's third largest economy and a bailout to prevent a default on its massive debt – nearly 120 percent of its GDP – would be too expensive for the 17-nation common currency bloc to bear.

Meanwhile, the EU on Thursday warned that the 17-country eurozone could slip into another recession next year. The EU says the eurozone will grow by only 0.5 percent in 2012, down from its earlier prediction of 1.8 percent.