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Why Markets Are Down So Much

Why are markets down so much? Because Italy's Berlusconi announcing his resignation has raised even more questions: it's not clear when he is leaving, or what path the country will be taking.

One thing's for sure: markets gave Berlusconi four months to do something since things got rocky — and he's not done anything. Now he is paying for his inaction: Markets are demanding a new government with a clear mandate, and it's not sure they will get it.

Berlusconi's center/right coalition still has a majority in the Senate, and a slight minority in the lower house. They could recreate a new center/right coalition without Berlusconi, but Berlusconi will still hold power because it's likely the new caretaker PM will be Angelina Alfano, a Berlusconi associate who, as Justice Minister, tried to guarantee immunity from prosecution in the courts.

See? Markets are unhappy because they smell no real change.

The ECB is surely unhappy as well. Last week, they committed to buying 10 billion euros. Not clear how much they have bought this week, but it is obviously not enough.

The ECB is unlikely to make any kind of large-scale purchases until a new government commits to reforms. That is the tack the EU took with Greece, and it appears to be working, since they are moving toward accepting the EU package.

Why is Berlusconi so desperate to hold on to power? Aside from the usual ego issues, he may be more interested in securing protection from prosecution: he is being investigated on several fronts, and is obviously being given some kind of partial shield because of the need to attend to his "official duties."

Maybe he should worry more about the stocks of the companies he owns: companies like Mediaset (Italy's only private free-TV company), and Mondadori (Italy's biggest publisher) getting pummeled.

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  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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