The Euro has fallen against the US Dollar and a number of other peers as the markets were spooked by a deepening in Italy’s political troubles.
Italy edged closer to a full blown political crisis on Thursday after supporters of Silvio Berlusconi threatened to bring down Enrico Letters flimsy coalition government. Allies of the disgraced former Prime Minister threatened to abandon the government if a special committee meeting on October 4th votes to strip the 76-year media tycoon of his seat in the upper house of parliament.
If Berlusconi’s allies do walk then the government could fall, Enrico Letta’s Democratic Party seems unlikely to back down from its demands that Berlusconi must be expelled under the rule of law. If the government does fall it is likely to create a wave of uncertainty throughout the wider region and reignite the Eurocrisis.
Italian President Giorgio Naolitano further heightened the sense of impending doom after he told a political conference that he could not attend due to a ‘disturbing’ political development.
Last month Berlusconi was sentenced to four years in jail, commuted to community service or a year under house arrest for tax fraud. Adding to the sense of panic in Italy were rumours that Italy faces a further downgrade of its government debt which pushed up borrowing costs on 10-year bonds.
“This is the latest in a series of politically noisy events that threatens not only the stability of the current government, but the longer-term reform process more generally,” Timo del Carpio, European economist at RBC Capital Markets, said
Adding to the Euro’s woes was the release of data which showed that lending to companies fell in all of the Eurozone’s largest economies in August, highlighting the ongoing weakness in the region’s economic recovery.
Against the Pound the Euro managed to make small gains earlier in the session following the release of weaker than expected economic growth data. The news from Italy however saw it go back onto the retreat.
Euro (EUR) Exchange Rates
As of 12:50 pm
The Euro/US Dollar Exchange Rate is currently in the region of: 1.3494 <
The Euro/Pound Sterling Exchange Rate is currently in the region of: 0.8400 <
The Euro/Australian Dollar Exchange Rate is currently in the region of: 1.4377 <
The Euro/ New Zealand Dollar Exchange Rate is currently in the region of: 1.6262 <
The Euro/ Canadian Dollar Exchange Rate is currently in the region of: 1.3908 <