March 7 (Bloomberg) -- European Central Bank President Mario Draghi said the effect of Italy’s inconclusive election on financial markets was limited as Prime Minister Mario Monti’s economic reforms will survive the political impasse.
“After some excitement after the elections, markets have now reverted back more or less to where they were before,” Draghi told reporters in Frankfurt today. “Much of the fiscal adjustment Italy went through will continue going on automatic pilot.”
Italian bond yields initially surged after the Feb. 24-25 vote that left the Democratic Party with a majority in the lower house of parliament, with comedian-turned-politician Beppe Grillo and former premier Silvio Berlusconi winning blocking minorities in the Senate. The two men, who both campaigned against the austerity imposed by Monti, captured about 55 percent of the vote.
Italy’s 10-year bonds gained for a third day with the yield falling 4 basis points 4.62 percent at 3:15 p.m. in Rome. Still, that is 16 basis points higher than before elections.
Italy has enjoyed a respite from the region’s debt crisis amid the austerity measures Monti passed in his 15-month tenure and the ECB’s pledge to defend the euro and to aid countries in distress. Monti, whose coalition got about 10 percent of votes and came in fourth place, said yesterday that he won’t back a new government that would threaten the country’s fiscal commitments to the Europe Union.
“Italy, like all the other countries, should first continue on the structural reform path that is the only way to restore growth,” Draghi said. The country should also “build on the very significant consolidation that it has reached --that is very important because that is what gives credibility in the markets and therefore lower spreads.”
Monti raised taxes and overhauled the pension system and labor laws, helping to bring the budget deficit to the EU’s limit of 3 percent of gross domestic product. His policies led to a plunge in Italy’s bond yields from a euro-era record 7.48 percent, while deepening the fourth recession since 2001 and fueling the popular anger that boosted support for Grillo and Berlusconi.
To contact the reporter on this story: Lorenzo Totaro in Rome at email@example.com
To contact the editor responsible for this story: Craig Stirling at firstname.lastname@example.org