Eurozone crisis enters a decisive new phase as financial turmoil is replaced by political instability
The Italian election has produced a predictably shambolic outcome, shifting the eurozone crisis into a decisive new phase. Financial instability, it seems, is to be replaced by political instability, with electorates grown weary of the repeated rounds of self defeating austerity forced on them by Europe's political elites.
Last time this happened, the response was to impose unelected technocratic governments on the wayward nations, but it is not going to be so easy this time. Italians are in open rebellion, with Mario Monti's pro-reform Civic Choice finishing a distant fourth. Italians have voted en masse against Berlin's prescriptive austerity agenda.
Already the signs are that this political explosion will reignite the financial crisis. Italian bond yields spiked, and equity markets fell sharply. It will be recalled that crucial to stilling the financial crisis was the European Central Bank's promise of "outright monetary transactions", an open ended commitment to buy sovereign debt without limit.
In the end, not a single bond had to be purchased. The promise was enough to break the destruction cycle of deteriorating sovereign debt and banking conditions. It's possible that markets will now test the ECB's resolve afresh.
However, to avail themselves of the programme, countries have to agree to certain economic and fiscal measures. There is not a snowball's chance in Hades of the Italian parliament now agreeing to the sort of conditions that would be imposed. Hold onto your hats. It's about to get interesting again.
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