Italian Prime Minister Silvio Berlusconi suffered a huge humiliation in parliament on Tuesday in a vote that indicated he no longer had a majority and ratcheted up pressure for him to resign.
The following are reactions to the news:
STEPHEN STANLEY, CHIEF ECONOMIST, PIERPONT SECURITIES, STAMFORD, CONNECTICUT
It brings you one step closer for Berlusconi to step down. The next move is Berlusconi's on whether he would step down or call for a confidence vote. Or the opposition party would call for one. We are moving in a similar direction like Greece with a change in government. The sentiment coming into the day is that one step closer for Berlusconi leaving would be a 'risk-on' day.
THOMAS SIMONS, MONEY MARKET ECONOMIST, JEFFERIES & CO, NEW YORK
The Treasury market likes it. Since Berlusconi has no majority, there's a feeling he could resign which could be a risk-off event. The market seems a bit confused about what to do with this.
MARC CHANDLER, GLOBAL HEAD OF CURRENCY STRATEGY AT BROWN BROTHERS HARRIMAN
Basically this is the worst possible combination of events -- he wins the vote but doesn't get the majority.
This is euro negative because it increases near-term uncertainty ... it keeps uncertainty hanging over the market.
DAVID GILMORE, PARTNER, FOREIGN EXCHANGE ANALYTICS, ESSEX, CONNECTICUT
Leading up to this vote, people had been anticipating some type of leadership change. If that proves true, that should help the euro. At this point, anyone but Berlusconi is good. But if the margin requirements on Italian debt were to be raised, that will spark another wave of selling. We've been there, done that with Portugal, Greece and Ireland. It would really complicate the solvency problem for Italy.
KATHY LIEN, DIRECTOR OF CURRENCY RESEARCH AT GFT FOREX IN JERSEY CITY, NEW JERSEY
The votes are in and Berlusconi's party won but lost its parliamentary majority which leaves the Italian Prime Minister one step closer to resignation even though he will fight vehemently to hang onto his seat.
The euro sold off sharply after the votes were tallied because as of this second, Berlusconi is still in office.
We are getting dangerously close to 7 percent level in Italian bonds, which is the magic number. If Italy's 10 year bond yields hits 7 percent, the speculation of Italy becoming the next Greece would escalate significantly.
JURGEN ODENIUS, PRINCIPAL IN INTERNATIONAL ECONOMICS AND INVESTMENT STRATEGY, PRUDENTIAL FIXED INCOME, NEWARK, NEW YORK
His track record is that he's a fighter and he will not quietly resign. He may call for another confidence vote to rally the troops. The market is speculating on the demise of Berlusconi, but it's not clear whether a new government could be in place seamlessly.
Any government that replaces Berlusconi is a market-positive event only if it can jump-start reform.
I prefer someone who is less politically entrenched, but will he be able to have majority support and win a confidence vote? It is paramount that the (reform) process starts in earnest, or things will take a turn for the worse.
We are seeing the lack of confidence in the capital market is untenable.
(Reporting by Burton Frierson and David Gaffen in New York)