In Turmoil, Greece and Italy Deepen Euro Crisis

„With political turmoil still plaguing Greece and descending upon the much larger economy of Italy, the fate of the euro and market stability worldwide hinged Tuesday on whether two of Europe’s most tangled and unresponsive political cultures could deal with their tightening fiscal gridlock. The prospect of a new transitional, technocratic government in Greece, and signs that Silvio Berlusconi’s resilient hold on power in Italy was weakening in advance of a crucial parliamentary vote on Tuesday, did little to reassure investors that either country was prepared to grapple with the deep structural changes that investors are demanding to restore growth and reduce deficits.

In both places, it is not only the economy that is on trial, but also the ability of democratic government to make highly unpopular choices. The crisis gripping Mr. Berlusconi’s government deepened as interest rates on the country’s debt rose on Tuesday to 6.74 percent, the highest since the introduction of the euro more than a decade ago and nearing levels that have led to bailouts elsewhere.

Financial markets advanced early Monday on word that the prime minister was negotiating his exit, but lost ground after he denied the reports. On Tuesday, Asian markets generally retreated but European markets rose in early trading after two days of declines.

In Greece, where political chaos last week threatened to plunge the euro zone into crisis, doubts remained about the capacity of the political class to form a coalition government to push through reforms it has agreed to in return for a financial lifeline. So strong is the distrust that Europe’s finance ministers refused to release the next $11 billion in aid for Greece until the two leading political parties signed a letter affirming their commitment to meeting the conditions of the loan deal reached last month with European lenders.”