Spain “extremely concerned” about Italy jitters as risk premium rises

Stock market falls sharply on fears of post-electoral instability in euro zone’s third-largest economy

Spanish Foreign Minister José Manuel García-Margallo on Tuesday expressed “extreme concern” about the uncertainty in Italy in the wake of the general elections there that left the country in a potential political limbo.

That concern also manifested itself in the financial markets as the Spanish bourse fell sharply and the country’s risk premium jumped.

“The [election] result of any country, and much more when we are taking about the third economy in the euro zone, affects all of us,” García-Margallo said. “What has happened is a jump to nowhere that doesn’t augur well either for Italy or for Europe.”

At midafternoon, the blue-chip Ibex 35 index was down 2.64 percent, while the spread between the yield on the Spanish benchmark 10-year government bond and the German equivalent widened 24 basis points to 385 after having hit a high of 412 earlier on, its highest level in several weeks.

“We have to see how the situation develops, “Economy Minister Luis de Guindos said. “We hope there is a stable government. What is good for Italy is good for Spain.”

De Guindos said he was confident that: “In the end, the political will to carry out the policies needed to pull Europe out of crisis will prevail.”

The center-left coalition of Pierluigi Bersani won an absolute majority in the Italian lower house, but in the Senate neither Bersani nor former Prime Minister Silvio Berlusconi’s group won a clear majority. The latest reforms require the backing of both houses, opening the door for Berlusconi’s group to exercise a veto.

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