Spread widens to 260 points amid political fear
Milan, other European financial markets, fall dramatically27 August, 20:14
The FTSE-Mib, which fell by 2.10% on Monday, shed another 2.34% on Tuesday to close at 16,579 points amid fears over the future of Italy's fragile coalition government.
The most pressing concern is that ex-premier Silvio Berlusconi, who founded the centre-right People of Freedom Party (PdL) political party, is in a fierce dispute with Prime Minister Enrico Letta's centre-left Democratic Party (PD) over the future of a despised housing tax which the PdL has vowed to eliminate.
However, Finance Minister Fabrizio Saccomanni has said the country cannot afford to forgo the revenues from the IMU.
A decision on the tax is slated for Wednesday.
Meanwhile, the parties are also clashing over Berlusconi's future following his conviction on fraud charges.
The PdL on Sunday warned that it would bring down the Italian government and force new elections if PD party members vote to expel Berlusconi from his Senate seat over his first-ever binding conviction for tax fraud.
At the European - and global - markets level, concerns are growing over possible international intervention in the dispute in Syria and what the might mean for energy prices and thus, the nascent economic recovery around the globe.
The uncertainly added to pressure on Italian bonds and helped to widen the spread between Italy's 10-year bond and its German counterpart.
That closed at 260 basis points Tuesday, up significantly from Monday's close of 249 basis points.
The yield on Italian 10-year paper closed at 4.44%, up from the 4.38% one day earlier.
The spread between lending rates in the two countries is seen as an indication of investor faith in the Italian economy and its ability to cope with a lingering recession.
On other European markets, Frankfurt's DAX dropped by a shocking 2.28% to close at 8,242.56 points, while Paris's CAC 40 shed fully 2.42% to close at 4,067.13 points, and Spain's IBEX 35 plunged by 2.96% to 8,394 points.
In London, the FTSE index of leading British shares suffered least on the day, losing only 0.79% to close at 6,440.97.