Milan’s main share index was very volatile during Monday’s trading. At one stage it rose almost four percent and the euro made sharp gains against the dollar as exit polls showed the centre-left group of Pier Luigi Bersani leading in the Italian election, ahead of the centre-right coalition led by Silvio Berlusconi.
Then there was a sell off of shares as it looked like Berlusconi’s bloc might have control of the Senate.
The MIB Index ended the session up 0.73 percent.
What the financial markets fear most is an inconclusive result.
Analysts said that could prompt an even bigger sell-off of shares than the return to power of scandal-mired Berlusconi, who led the country to the financial brink in 2011.
With the centre-left prevailing that is more likely to mean the creation of a reform-minded government.
As Berlusconi made gains in opinion polls in recent weeks there was a big sell off by investors of Italian shares and bonds.
A hung parliament would see Rome forced to increase the amount of interest it has to offer to get investors to buy its bonds. That would have a knock-on effect in the rest of the eurozone periphery, especially in Spain.
Italy’s borrowing costs have fallen sharply since Mario Monti formed his technocrat administration in November 2011 launching austerity policies that saved the country from a Greek-style debt crisis
Whoever wins in the end, they will have a tough time digging Italy out of its deep recession.
The economy has been shrinking for the past 18 months. Last year it contracted by 2.2 percent, and many companies are saying it is now time to pull down the barriers that have hampered Italian businesses and put foreign investors off Italy for years.