Global stock markets rebounded yesterday after political crises in Italy and Spain sent stocks into a tailspin. Unfortunately, for investors things could get worse from here.
This week the country's two largest parties, the left-wing 5-Star Movement and the right-wing League, tried to appoint an anti-European Union politician as finance minister, but it was vetoed by the country's president, who then appointed a new euro-friendly prime minister.
Those moves caused the parties to abandon coalition talks — the country's parties have been trying to form a government since the March 4 election — and call for a snap election, which could take place as early as July.
Last week in Spain the country's ruling party was found to have been involved in an illegal kickbacks scheme, while a former treasurer and close friend of the president was convicted of fraud and money laundering and sentenced to 33 years in prison. The country's prime minister faces a no-confidence vote on Friday.
While both countries' issues contributed to the recent market turmoil — the S&P 500 is down 1.27 percent and the MSCI Europe has fallen by nearly 5 percent since May 22 — Italy's issues are far more damaging to the EU's future. Both 5-Star and League want to leave the euro zone, even though they're on opposite ends of the political divide. If they do form a coalition, or if one party wins outright, then the EU could be done for.