Italian stocks continue to fall as prime minister steps aside

The collapse of Italy's populist coalition and resulting political instability are making investors uneasy.

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    The Italian prime minister accused his own deputy of being 'liable to tip the country into a spiral of political uncertainty and financial instability' [Massimo Pinca/Reuters]
    The Italian prime minister accused his own deputy of being 'liable to tip the country into a spiral of political uncertainty and financial instability' [Massimo Pinca/Reuters]

    Italian stocks extended this month's decline after Prime Minister Giuseppe Conte announced his plans to resign.

    The FTSE MIB Index was down 0.7% as of 4:49 p.m. in Milan, after earlier sliding as much as 1.3%. Banking shares paced the declines, with UniCredit SpA losing 1.9% and Intesa Sanpaolo falling 0.6%.

    Italy's equity benchmark is heading for its worst monthly drop since May, after one of the country's coalition partners withdrew support to the government earlier in August.

    Conte's resignation "marks a significant escalation in the government crisis and puts the Italian budget in jeopardy, although if he can cobble together one without the League it might help to provide a better platform for negotiations with Brussels," said Chris Beauchamp, chief market analyst at IG.

    Italian markets have had a bumpy 14 months since the coalition between the right-wing League party and the anti-establishment Five Star Movement formed and announced plans to raise spending, putting it on a collision course with the European Union.

    Just when investors thought they could breathe easy after the government lowered its budget deficit in a bid to avoid EU sanctions, fresh political turmoil hit the market.

    Conte said he will hand his resignation to the Italian president later on Tuesday after telling lawmakers that his deputy Matteo Salvini's rebellion means the administration can't continue.

    At stake is whether Italy's mountain of public debt will be managed by a right-wing ideologue set on confrontation with the EU.

    SOURCE: Bloomberg