Twin crises in Italy and Spain stalk markets as political unrest prevails

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The escalating political crises in Italy and Spain are being watched with growing concern by bond investors, fearful that both countries could slide into paralysis and lose the crucial backing of the European Central Bank.

“Markets have been extraordinarily complacent,” said sovereign debt strategist Nicholas Spiro. “The prospects of a stable and reform-minded government in Italy are very slim. We think a nasty surprise is coming.”

In Italy, ex-premier Silvio Berlusconi has upset the political landscape just three weeks before elections, surging back into contention with vows to rip up “German-imposed” austerity policies and cancel a hated property tax.

His Right-wing alliance has risen to 28pc in the polls, relishing a widening scandal at Banca Monte dei Paschi that has embroiled the Italian left.

“Austerity in countries already in crisis pushes them into a very dangerous reces­sionary spiral. These policies have left 50m Europeans unemployed or short of work. We need to get rough with Germany, otherwise reality will force a number of countries to leave the euro,” he said.

Anti-euro comedian Beppe Grillo has climbed to 18pc, though he may have gone a step too far by inviting al-Qaeda to blow up Italy’s parliament. “We’ll give them the co-ordinates,” he said. A hung parliament is now likely, with eurosceptics between them controlling the senate.

Read more @ The Telegraph