Mario Monti prepares to form new Italian government

Mario Monti, former European commissioner, will lead a new Italian government following the departure of Silvio Berlusconi over the weekened.

The markets have reacted positively to the news this morning with the FTSE MIB climbing 2.14% and the FTSE Italia All-Share by 1.87% within minutes of opening.

Italian ten-year bonds are currently yielding 6.5% and spreads have narrowed to 463 points above bunds.

Italy has sold €3 billion (£2.6 billion) in five-year bonds at the first Italian bond auction held under Prime Minister Mario Monti. Italy was forced to offer a record high yield of 6.29%.

Ex-prime minister Berlusconi was forced to tender his resignation last week when yields surpassed 7%, the same levels that inspired Portugal, Greece and Ireland to accept bailouts.

Monti will initially be tasked with reassuring investors that the third largest economy in the eurozone can manage a €1.9 trillion (£1.6 trillion) debt whilst inspiring economic growth.

Consultations will begin today but it is unclear exactly when a new unity government will be confirmed.

The €59.8 billion austerity package agreed on Saturday will result in a 1% increase in VAT alongside a freeze on public sector wages and a rise in the retirement age.

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