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European Debt Crisis

Italy election deadlock reignites debt crisis fears

Christopher Werth Feb 26, 2013
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European Debt Crisis

Italy election deadlock reignites debt crisis fears

Christopher Werth Feb 26, 2013
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Remember a time not long ago when analysts and pundits predicted the break up of the euro? The European debt crisis has calmed down a lot in the past few months, but elections in Italy have ended in deadlock and uncertainty is back.

Poll results today show power is split between a number of parties, including one led by former Italian Prime Minister, Silvio Berlusconi.

Carsten Brzeski, an economist at ING in Brussels, says a political stalemate means Italy is unlikely to get its financial house in order anytime soon.

“These elections are really another painful reminder that the crisis is far from being over,” says Brzeski.

The uncertainty has already driven up Italy’s cost of borrowing. The fear now is that doubt will spread to other euro countries like Spain. Spain continues to grapple with an unemployment rate of 26 percent as it implements deep budget cuts.

“There’s a real problem for Spain, which is that people really don’t have any trust in the government and the reform process,” says Luis Garicano of the London School of Economics.

Garicano says the elections in Italy are testing the stability of the euro, and posing an important question: Does the continent really want the currency at all?

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