From the standpoint of European stability, the Italian elections could not have delivered a worse outcome. Italy's parliament is divided among three mutually incompatible political forces, with none strong enough to rule alone. Worse, one of these forces, which won 25 percent of the vote, is an anti-euro populist party, while another, a Euro-skeptic group led by former Prime Minister Silvio Berlusconi, received close to 30 percent support, giving anti-euro parties a clear majority.
Despite these scary results, the interest-rate spread for Italian government bonds relative to German bunds has increased by only 40 basis points since the election.
In July 2012, when a pro-European, austerity-minded government was running the country, with the well-respected economist Mario Monti in charge, the spread reached 536 basis points. Today, with no government and little chance that a decent one will be formed soon, the spread sits at 314 points.