Markets rise but eurozone contagion fears spread to Spain

Saturday, November 12, 2011
By Paul Martin

Political progress in Italy and Greece pushed stock markets higher but economists warned of stormy weeks ahead as attention turned to Spain amid fears it could be the next economy to come under the spotlight.

By Jonathan Sibun, and Harry Wilson
TelegraphUK
11 Nov 2011

The FTSE 100 rose 100.57 – or 1.9pc – to 5545.38, closing a turbulent week 1.3pc higher. In Italy the FTSE MIB was up 3.7pc on the day, while France’s CAC rose 2.8pc, the German Dax gained 3.2pc and in the US the Dow Jones closed 2.2pc higher.

The rally came as bond yields fell with Italian 10-year debt touching 6.4pc on signs that politicians are finally recognising the scale of the crisis.

In Italy, hopes are growing that a new government could be installed as early as tomorrow after the Senate approved an economic reform bill, paving the way for Silvio Berlusconi’s resignation. The austerity package, seen as crucial to averting an Italian bail-out, will go before the country’s lower house today before an emergency government is installed. Mario Monti remains the frontrunner to succeed Mr Berlusconi.
“The most important element to overcome this crisis is a trusted and able new Italian government that can really fulfill the structural changes that are needed,” said Ewald Nowotny, a member of the governing council at the European Central Bank (ECB).

Markets also took cheer as Lucas Papademos was sworn into office in Greece after days of political wrangling. Inspectors from the International Monetary Fund (IMF), European Union (EU) and ECB are set to visit Athens next week, potentially leading to the release of €8bn (£6.9bn) in bail-out funds.

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