Despite Greek Deal, Eurozone Struggles

Papandreou to resign; Berlusconi resists

Despite a deal worked out with Greece’s leaders to support its latest bailout, the eurozone still battles market unrest as the leadership of both Greece and Italy is up in the air.

Prime Minister George Papandreou agreed over the weekend to resign, once a unity government has been created to oversee the execution of austerity measures and set the stage for early elections. That was expected to reassure markets, but no successor has been decided.

And the market picture on Monday was far from rosy as Italy’s Prime Minister Silvio Berlusconi refuted rumors that he was on the verge of stepping down, insisting he would continue to serve through 2013. European markets, inlcuding the DAX and the CAC 40, were down a little more than a half percentage point in Monday trading.

The failure of the Berlusconi government to reach consensus on austerity measures has been a constant thorn in the eurozone’s side, and now attention has turned to Rome since Athens has apparently resolved its bailout issue.

Also at stake are the eurozone’s efforts to revamp the European Financial Stability Facility (EFSF), according to a Bloomberg report. The EFSF is in the process of being strengthened, and eurozone finance ministers sought financial support last week from G20 nations to beef it up; however, thus far there have been no takers, since details on how it will work remain sketchy. Talks were set to resume later Monday.

Joachim Fels, Morgan Stanley’s chief global economist in London, was quoted saying Sunday, “The leveraged EFSF may still turn into a bazooka, but so far it looks more like a water pistol.” He warned, “don’t hold your breath” for finance ministers to explain the mechanics of how the rejiggered EFSF would work.

The New York Times reported Monday that sources close to Berlusconi said he would resign Monday or Tuesday, with Giuliano Ferrara, editor of the newspaper Foglio and a former minister seen as very close to Berlusconi, saying on the paper’s website, “That Silvio Berlusconi is about to resign is clear. It is a question of hours, some say of minutes.” However, Berlusconi strongly denied any such intent, although he faces a confidence vote Tuesday that may decide the issue for him.

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