Italian Political Upheaval Threatens Global Markets

Italian turmoil upsets markets
Elisabetta Villa / Getty Images

Recent political upheaval in Italy has begun to seriously jeopardize global markets, with the DOW plunging by hundreds of points as global fears of a trade and credit crisis continue to grow. The eurozone debt crisis of 2011 has long since passed, but concerns about Italy’s ever-growing debt continue to mount as it’s becoming increasingly clear the country’s huge deficits will present a dilemma to global markets.

Italian stocks and bonds were particularly hit hard by the news, and fears continue to grow that the Italian government will clash with the European Union, and that further political unrest could send stocks spiraling yet again. As Market Watch reported, Italy’s president recently blocked the formation of a new government, which many spectators had expected to withdraw from the European Union’s shared currency project that sees its member states rely on the Euro.

Future elections that could be held as recently as this year are likely to tilt the economic cart further towards pandemonium, especially if anti-establishment parties leverage growing public anxiety to push for radical new economic changes.

“There’s an existential threat hanging over the single currency if we head into more elections this summer; I don’t know how we get away from that now, given the scale of the financial implications,” Kit Juckes, the chief foreign-exchange strategist at Societe Generale, told the Wall Street Journal.

Italian election and turmoil in the markets
  Elisabetta Villa / Getty Images

If Italy ultimately decides to ditch the Euro and leave the EU’s central currency regime, EU bond markets could spiral out of control. Borrowing cost for the government soared quickly, largely thanks to expectations of worrying economic progress in the future, and the Italian government will find it more and more difficult to work out a solution to the economic crisis with EU authorities until it can reasonably negotiate through a unified national platform.

Investors around the globe worry that this new Italian crisis could put an end to blockbuster trading years that have seen the DOW soaring to record new heights. With Italy being the third-largest economy in the eurozone, the implications of the country’s economic failure will impact most of the global market.

As CNN reporting elucidates, Italian problems are big and plentiful; youth unemployment, rising cost of borrowing, and soaring national debt figures are likely to harm any efforts at political unity in the near future. As the country’s mountain of debt grows ever-larger, Italian and EU authorities will continue to attempt to hash out an economic reform deal.