Ahead of another bout of elections in Italy, European shares have tumbled over fears the euro zone may be in danger of collapsing.
Billed as a proxy referendum on the country’s future within Europe, stock markets plummeted at the prospect of another nation forcing its way out of either the euro or the EU itself.
Italy’s main stock index extended early losses to sink to a 10-month low, down 3 percent on Tuesday morning.
Bank shares slumped another 4.8 percent to a fresh 13-month low, bruised by a sell-off in Italian government bonds, a core part of the banks’ portfolios.
Euro falls as uncertainty grows
The euro tumbled to a fresh six-month low on Tuesday, while yields on Italian debt climbed — ratcheting up the extra borrowing costs or spread that Rome pays in comparison with Germany.
In new elections, the radicals will likely rail even more loudly than before against Italy’s pro-European ‘establishment’ and an alleged ‘German hegemony’ exercised through the rulebook of the single currency,” Holger Schmieding, chief economist at Berenberg, told CNBC in a research note published Monday.
He warned that Italy’s anti-establishment parties had become well-placed to fight a new election campaign on a more explicit anti-euro platform.
“Especially the Lega may frame a new election as a de facto referendum on Italy’s role in Europe,” he added.