European markets shudder over Italy

Bloomberg

It looks like the debt crisis days of 2012 all over again for investors, as Italian, Portuguese and Greek bond yields surged and billionaire George Soros warned of an “ existential threat” to the European Union.
The trigger was the prospect of anti-EU, nationalist parties in Italy turning a repeat election into a de facto referendum on Italy’s membership of the euro. Italian assets
sank across the board on Tuesday, with the risk premium on 10-year bonds over German benchmarks rising to the biggest in almost five years.
“Italy is now facing elections in the midst of political chaos,” Soros said at a speech in Paris, warning that failed economic and immigration policies mean that “it is no longer a figure of speech to say that Europe is in existential danger; it is the harsh reality.”
For all the talk of an economic recovery and a return to stability, recent days have shown how quickly sentiment can get upended on a continent where disillusionment and division are still rife, especially in the south. And there’s little prospect of a let up in political risk over the coming weeks and months.
The euro slipped to a 10-month low of $1.151 against the dollar before paring losses, while traditional currency havens such as the Japanese yen and the Swiss franc gained.
Uncertainty over Italy, as well the prospect of political turmoil in Spain as the prime minister faces a no-confidence vote, contaminated European periphery markets such as Portugal and Greece. Yields on 10-year Greek government bonds surged close to 5 percent, complicating the country’s plans for a clean exit from its bailout program in August.
It was elections in Greece in 2012 that put the euro region on tenterhooks before the European Central Bank declared it would do anything it takes to support the currency union.
In Italy, it’s a face-off between the establishment and two parties who ran on anti-EU platforms of deficit spending and reduced immigration. It now has investors recalculating
the risks of the euro zone’s third-biggest economy exiting the currency bloc. Italy’s Democratic Party charged its rivals, the League and the Five Star Movement, with having prepared a plan to pull the country out of the euro. That evoked memories of 2015, when Greece’s opposition accused the government of Alexis Tsipras of staging a clash with creditors over austerity as a pretense to leave the currency bloc.