Europe Economy

European Stocks Seen Sharply Lower on Italy Fears

European stocks are expected to open sharply lower on Thursday tracking heavy losses in Asia and Wall Street following a jump in Italian borrowing costs above 7 percent.

The FTSE is called lower by 86 points, the DAX is expected to be 104 points lower and the CAC 40 is seen down by 55 points.

News that Italian Prime Minister Silvio Berlusconi would push for an election early next year rather than stand aside to allow an interim government to be formed and a number of stern warnings from policy makers added to negative market sentiment.

On Wednesday two clearing houses raised margins for those trading Italian bonds, prompting heavy selling of Italian debt in early trade.

Adding to the uncertainty surrounding the euro zone was the collapse of a deal to find a new Greek Prime Minister.

Having waited all day for news of who would replace George Papandreou, the outgoing Greek Prime Minister addressed the nation but said no deal had yet been done.Investors will now have to wait to see if a deal can be struck on Thursday.

Reports indicate the chances of former European Central Bank vice president Lucas Papademos heading the coalition are rising.

Late on Wednesday the Irish government threatened to force Irish lenders to cut rates and pass the recent European Central Bank rate cut on to consumers.

Many mortgage holders are currently paying 6 percent in Ireland despite the official ECB rate being just 1.25 percent.

In London we get a decision from the Bank of England on rates at 12:00 GMT.

Rates are expected to remain on hold as the central bank assesses the impact of its recent decision to expand its quantitative easing program.

There is a raft of earnings this morning with the likes of Deutsche Telekom and Siemens hitting the tape in Frankfurt.

Overnight in the US Cisco beat the street, sending shares up 4 percent in after hours trade.