Investors get an early (unwanted) Christmas present from Europe

Just when you thought the eurozone sovereign debt crisis was under control, Italy goes and spoils it for everyone.

The news that Italian prime minister Mario Monti is planning to resign has spooked investors across Europe this morning.

Perhaps more worrying is that Silvio Berlusconi is planning to run for office again.

As well as the main stock market in Italy falling by more than 3% on the news, banking shares across Europe have been hit particularly hard by investor reaction.

Shares in Banca Monte dei Paschi di Siena, the oldest surviving bank in the world and the third largest in Italy, fell by 6% on the news.

Italy’s 10-year bond yield has increased by 20 basis points to 4.79%.

Mr Monti was brought in to run a technocrat government in Italy last year, responding largely to investor fears about the short-term financial health of the Italian government.

His intention to resign the post raises valid fears about the stability of their economy and risk of a contagion spreading from Greece.

We still haven’t seen any real solutions to the debt crisis in Europe, only ways to defer the issue and temporarily calm investors.

Until European politicians come up with some decisive action to restore the economic well being of the eurozone, we expect to see events such as these continue at regular intervals.

Investors in Europe should be prepared for a bumpy ride in 2013.

Photo credit: Flickr/david_a_lea