19 percent of Germans say they would vote for the new German Anti- Euro Party ..... Overnite news and data for Europe and Asia ! Cyprus bail - in net now will hit previously exempted groups such as Charities , private Schools and Cypriot Insurance Companies as the rules change again - how might this impact the vote of the Cypriot Parliament ?

http://www.zerohedge.com/news/2013-04-22/merkel-europe-prepare-cede-sovereignty

Merkel To Europe: "Prepare To Cede Sovereignty"

Submitted by Tyler Durden on 04/22/2013 08:57 -0400

• Deutsche Bank
 
• European Central Bank
 
• European Union
• Germany
 
• Reuters

The liquidity tsunami that started in September of 2012 in the Marriner Eccles building and continued with the BOJ's own epic QEasing expansion three weeks ago, has so far provided the impetus for Europe to kick the can of its inevitable dissolution for a few more months, yet slowly but surely the market is starting to read through the artificial levels implied by Italian and Spanish bonds, driven by recycled ECB funding via bank and repo conduits and of course Japanese carry cash, and rumblings of a return to crisis conditions are back.

And as always happens, once the crisis talk is back, so is discussion of a fiscal union. Sure enough, earlier today Germany's Angela Merkel once again reminded everyone just what the stakes are in order to achieve a truly stable, and sustainable European union: nothing short of ceding sovereignty to Germany. And with that we are back to square one, because that has always been the trade off - want a unified, fiscally and monetarily, Europe? You can get it: just bow down to Merkel.

From Reuters:

German Chancellor Angela Merkel said on Monday that euro zone members must be prepared to cede control over certain policy domains to European institutions if the bloc is truly to overcome its debt crisis and win back foreign investors.

Speaking at an event hosted by Deutsche Bank in Berlin alongside Polish Prime Minister Donald Tusk, Merkel also defended her approach to the crisis against critics who argue she has put too much emphasis on austerity, saying Europe must find a way to deliver both growth and solid finances.

The comments came two months before European leaders are due to gather in Brussels to discuss moving towards a so-called "fiscal union".

The punchline:

"We seem to find common solutions when we are staring over the abyss," Merkel said. "But as soon as the pressure eases, people say they want to go their own way.

"We need to be ready to accept that Europe has the last word in certain areas. Otherwise we won't be able to continue to build Europe," she added.

Two conclusions here: Europe will be "staring over the abyss" very soon once again, and where Merkel says "Europe" she means Germany.

This is confirmed by the immediate denial of precisely this, adding "it would be "dangerous" if other countries in Europe felt Germany was imposing its own economic model across the entire bloc."

Oh, ok then.

So just what is Germany's vision for "Europe":

"We don't always need to give up national practices but we need to be compatible," Merkel said. "It is chaos right now."

"We need to be prepared to break with the past in order to leap forward. I'm ready to do this," she said.

So... just give up national practices sometimes. And yes, Merkel is of course ready to head the asset-stripmined continent. The question is who else in Europe is willing to hand over their liberties to the next iteration of the German Reich?

http://www.zerohedge.com/news/2013-04-22/19-germans-say-they-would-vote-anti-euro-party

19% Of Germans Say They Would Vote For Anti-Euro Party

Submitted by Tyler Durden on 04/22/2013 07:15 -0400

• Germany
 
• Google

In what may come as a shock to an otherwise quiet Germany, which has hardly seen any of the vocal (and actionable) "Euroskepticism" prevalent among its smaller peripheral neighbors, Handeslbslatt reports that a whopping 19% of Germans have said they would vote the anti-euro party Alternative for Germany (AFD). This means Bernd Lucke's party, which appeared as if out of nowhere, has succeeded in taking Germany by storm, and is likely that his success and prominence will merely convert even more people on the fence about Europe's future to those demanding a Deutsche Mark return. And while the AFD has yet to pose a direct threat to Merkel's ruling CDU coalition which has 36.7% of the vote five months ahead of elections, recall that everyone ignored Beppe Grillo as a mere sideshow weeks before his blistering performance to nearly win the Italian election in February.

All that would take for another surge in the Euroskeptic's popularity is another summer of economic discontent and contraction: precisely the kind that is shaping up for Europe for the fifth year in a row.

From Handelsblatt, Google translated:

The new anti-euro party alternative for Germany (AFD) has a good chance to collect in autumn in the Bundestag. The result of a representative survey of online market research company market research on behalf of Handelsblatt Online. 19.2 percent of the 1,003 respondents affirmed therefore the question of whether they would give the party their vote in the general election (24.9 percent of men and 14.8 percent of women).

Their greatest potential voters, the party in the 31 - to 45-year-olds. 19.3 percent of this age group would give their vote for the AFD (in the 18 - to 30-year-olds: 14.2 percent, at the 46 - 65 year olds: 23.1 percent).

54.6 percent of respondents (56.7 percent of men, 53 percent of women) would not choose the AFD on the other hand, 26 percent of respondents stated that they have not made a choice decision (18.4 percent of men, 32.2 percent of women).

In its election manifesto, the AFD calls for "orderly resolution of the euro area". Of the respondents this requirement is viewed critically. In particular, the projects that Germany gets out of the euro and return to the D-Mark, hardly find supporters. 37 percent of respondents want to return to the Deutsche Mark (35.9 percent of men, 38 percent of women). In contrast, 63 percent of respondents are in favor, stick to the euro (64.1 percent of men, 62 percent of women).

On the Handelsblatt prediction markets , the other parties to which the "alternative for Germany" were heard on Sunday at 25 percent - the beginning of the year there were just over three percent, the strongest party was the CDU with 30.5 percent. Together with the FDP (6.2 percent) they would to 36.7 percent. SPD (20 per cent) and the Greens (10.4 per cent) are significantly behind with a total of 30.4 percent. The Left Party would have to fear about 5 percent for a place in the Bundestag.

The prediction markets shows recent changes in opinion very quickly, because there will be traded continuously. On the platform, participants can trade the parties in the general election as a virtual shares. Behind this is the following idea: in the share price, the different personal expectations of participants about the performance of the parties incorporated. At the end of the game is a payoff equal to the result of the parties in the general election.

According to a survey by the polling institute YouGov on behalf of "time-line", the AFD has its greatest potential voters in previous FDP and the Left Party voters. 35 percent of those who voted for the Left in the 2009 parliamentary elections can imagine, therefore, to vote in the fall for the AFD. Under the FDP voters, there are 33 percent of Union and SPD voters 18 per cent, with the Greens voters 16 percent.

Total imagined even 27 percent of the Germans to choose the new party, according to the YouGov survey. But only three percent would give the AFD with certainty their voice when on Sunday would be parliamentary elections. When Allen Bach is, although almost a fifth of the population could imagine to support the party again, the AFD achieved in the concrete choice intentions so far only one to two percent.

http://economictimes.indiatimes.com/news/international-business/cyprus-bailout-also-hits-charities-private-schools/articleshow/19677065.cms

Cyprus bailout also hits charities, private schools

By AFP | 22 Apr, 2013, 03.44PM IST

0 comments |Post a Comment

READ MORE ON » Private schools | INTERNATIONAL MONETARY FUND | insurance firms | insurance | EU bailout |Bank of Cyprus

They had all previously been exempt from a haircut in the bank restructuring required under the terms of the 10 billion euro bailout for Cyprus.

NICOSIA: Charities, private schools andinsurance firms with deposits in the troubledBank of Cyprus will suffer a 27.5 per cent haircut under the island's EU bailout, the central bank said.

They had all previously been exempt from a haircut in the bank restructuring required under the terms of the 10 billion euro bailout for Cyprus.

All insurance firm deposits will receive a hit while unregistered financial companies, charities and some educational institutions with deposits over 100,000 euros in the Bank of Cyprus will also get a 27.5 per cent cut.

"The review was undertaken with the aim to limit the extent of the exemptions so as to lighten the burden on affected (large) depositors in the Bank of Cyprus," the central bank said in a statement late on Sunday.

A bail-in from depositors was a key element of a deal which Nicosia struck with its EU partners and the International Monetary Fund last month to help fund a 23 billion euro ($30 billion) rescue package.

Bank of Cyprus depositors are already facing a certain 37.5 per cent loss on deposits over 100,000 euros -- to be exchanged for shares -- with another 22.5 per cent locked depending on the cost of restructuring.

Large depositors could lose all of the remaining 60 per cent of their balances over 100,000 euros depending on the costs of winding up and merging second-largest lender Laiki.

Savers in that bank will have to wait years to see any of their cash over 100,000 euros.

Central bank spokeswoman Aliki Stylianou told state radio Monday that the move was to ease to pressure on large Bank of Cyprus depositors but a final estimate on how much they would lose will not be ready before the end of June.

Banks have been operating under stringent capital controls since they reopened on March 28, after a near two-week lockdown prompted by fears of a run on deposits.

http://www.zerohedge.com/news/2013-04-22/gold-surges-quiet-trading-session


Gold Surges In Quiet Trading Session
Submitted by Tyler Durden on 04/22/2013 06:58 -0400

Bond China Consumer Confidence David Bianco European Central Bank Eurozone Gross Domestic Product headlines Housing Market International Monetary Fund Iran Israel Italy Japan Middle East Monetary Policy net interest margin New Home Sales Nikkei Quantitative Easing Reality recovery Silvio Berlusconi Unemployment United Kingdom World Bank Yen


With no macro data on the docket (the NAR's self promotional "existing home sales" advertising brochure is anything but data), the market will be chasing the usual carry currency pair suspects for hints how to trade. Alas, with even more ominous economics news out of Europe, and an apparently inability of Mrs Watanabe to breach 100 on the USDJPY (hitting 99.98 for the second time in two weeks before rolling over once more), we may be rangebound, or downward boung if CAT shocks everyone with just how bad the Chinese (and global) heavy construction (and thus growth) reality truly is. One asset, however, that has outperformed and is up by well over 2% is gold, trading at $1435 at last check, over $100 from the lows posted a week ago, and rising rapidly on no particular news as the sell off appears to be over and now the snapback comes and the realization that Goldman was happily buying everything its clients were selling all along.

Curiously the other outperforming asset class in the overnight market are Italian BTPs, whose yield was sliding by another 11 bps to 4.11% on hope the reelection of the 87 year old Napolitano as president on the 6th round of voting will end the gridlock plaguing Italian politics, bring some sort of political compromise to the country as  well as a grand alliance. Yet another one of those "we will believe it when we see it" events, especially with the implosion suffered by the Democratic Party over the weekend.

Speaking of Europe, there was little other good news. ECB's Weidmann told FAZ that monetary policy must focus on inflation, hardly news the Buddhist monetarists (all about the here and now, tomorrow never comes) wanted to hear on a monday morning. Adding to the worries of the EUR bulls, Bonnici echoed Weidmann from last week, adding that a rate cut would have "limited impact", an outcome further justified by Asmussen who said a rate cut is possible if justified by the data. This explains the inability of the EUR to catch any bid in the overnight session. The final hammer in the European economic coffin came from the Bundesbank which said that "sluggish industrial production and cold winter weather" may have delayed Germany's economic recovery. Yep: the weather is to blame again.

Adding substantial pressure on the future of Europe was news overnight from Handesblatt that the German anti-Euro party would gain 19% of the political vote.

Finally, rounding off the picture, was the update that Euro-Area government debt rose to a record 90.6% of GDP in 2012. How did the Keynesians react to this news? "Not Nearly Enough!"

A quick look at European markets:

Italian 10Y yield down 11bps to 4.11%
BTP/bund 10Y spread -12bps to 285bps; earlier hit 2-mo. tight at 280bps
Spanish 10Y yield down 7bps to 4.56%
U.K. 10Y yield up 4bps to 1.7%
German 10Y yield up 1bp to 1.26%
Bund future down 0.03% to 145.98
BTP future up 0.82% to 113.93
EUR/USD down 0.05% to $1.3046
Dollar Index up 0.08% to 82.78
Sterling spot up 0.06% to $1.524
1Y euro cross currency basis swap up 1bp to -21bps
Stoxx 600 up 0.78% to 287.43
SocGen's summary of key macro events to watch out for:

Headlines from Italy over the weekend are delivering a positive impetus for cross asset markets as the week gets underway, with periphery debt the main beneficiary and 10y BTP yields slipping closer to 4.00%. This has not translated into higher EUR/G10 which says quite a bit over EUR sentiment and a bias to focus on the USD side of the equation especially with a raft of US data including GDP looming this week. The wealth effect is finally helping support the US housing market. After sending long-term rates into a nosedive, now that households have deleveraged (SG report), and as US stock markets recently hit their highest points since 2007, the wealth effect of US households is being rebuilt. This should be reflected in existing home sales today.

This probably creates some hope for the outlook for domestic demand, and thus supports our call on the Fed. However, the Fed is in no hurry to put a stop to its asset buying policy (currently $85bn/month). As a reminder, retail sales reported on 12 April disappointed, but this week's data rush will provide a fresh angle.

The situation is not at all the same in the eurozone, with very different leverage and wealth effects. Given the unemployment rate of 12%, household confidence to be reported today will unfortunately most likely reaffirm the bleak economic situation. Against this backdrop, it is tough to be optimistic on the capacity of European households to boost business morale. Output growth has stalled, thus the ECB is having a hard time finding a satisfactory solution right now in overcoming a fragmented North/South divide. Speculation on another rate cut will not go away especially after Weidmann's comments last week: most participants who have floated this possibility of more stimulus are nevertheless doubtful that it would have a big impact on activity.

That said, this just bolsters our scenario in the medium term for a drop in the EUR/USD, and an underperformance of the US bond markets vs EUR bond markets in H2 2013.

The news cycle from this weekend via DB's Jim Reid

Just over 20% of S&P500 companies have reported earnings thus far, represent about one-third of the index’s market cap, and we’re starting to get a clearer picture of how the reporting season is panning out in the US. As we mentioned in last Friday’s EMR, we are seeing a large divergence in terms of the EPS and revenue performance. Of the firms that have reported so far, the beat/miss ratio for earnings is 71%:27% (2% in line). However the beat/miss ratio for sales is currently tracking under 50% (currently 48%:52%). This is clearly a weaker performance versus the 64% sales beat ratio in Q4 2012 but slightly better than the 42% and 41% in Q3 and Q2 of last year so this is not a new trend. For the record, current Q1 EPS beats are not too dissimilar to what we saw in Q4 (74%), Q3 (72%) and Q2 (71%) of last year. It does seem that the stronger Dollar and perhaps weak European activity are having a drag on top line numbers this time round but our US equity strategist David Bianco also noted that net interest margin pressures (on banks), flattish commodity prices, and still soft capex conditions are all reasons behind the sales weakness. By industry, Financials, Healthcare, Industrial and Tech are having the weakest sales beat ratios this reporting season.

It is still early days for Europe but we are also witnessing a similar trend here. Of the 40-odd Stoxx600 companies that have reported so far, 60% of those have beaten EPS estimates but less than 40% have been able to do so on the top line. Stoxx600 EPS beats have ranged between 55%-58% in the last four quarters so the current run-rate is not far off that. Sales performance has been typically the bright spot though for Europe given a 60%-plus beat ratio (other than Q3 12’s 54%) in the past year so we’ll see how European sales stats unfolds this time round. Our usual earnings tracker table is included in the PDF of today’s EMR. Staying on this theme its worth highlighting that we are also moving into one of the peak reporting weeks in Japan. Over 50 Nikkei firms are lined up to report this week, which represents about 32% of the index’s market capitalisation. Japan clearly has been one of the bigger macro stories this year and with the Nikkei being a global outperformer to date, corporate fundamentals may eventually need to show signs of improvement to support the rally. We’ve seen 8 Japanese firms report so far of which 6 have beaten sales estimates but only half topping EPS consensus. The Nikkei’s sales beat/miss ratio for the corresponding  quarter was an unimpressive 49%/51% although EPS performance was solid at 63%:37%.

Clearly its early days still but we have an interesting few weeks ahead to see what a 9% depreciation of the JPY during the 3 months of 2013 will do to corporate results. For what it’s worth, a 11% decline in the Yen between October-December of last year seemed to have done little for top line. Maybe there's a J-curve impact and the fruits of the Yen devaluation will come through more as we move through the year.

Turning to some of the weekend headlines, perhaps the most significant news of note was the re-election of Giorgo Napolitano as President of Italy. Napolitano becomes the first Italian president to be given a second seven-year term after reluctantly accepting a plea from the Democrat Party along with caretaker PM Mario Monti and Silvio Berlusconi to stand again. DB’s Marco Stringa thinks that markets will react positively, even if Napolitano reflection is a symbol of the fragmentation within the Italian political system. On the positive side, the market should be relieved that the risk of elections in the summer should be avoided and that finally a new government can be formed. Indeed, they see Napolitano’s reelection as an implicit commitment by the centre-left,  centre-right and Monti’s Civic Alliance to support the formation of a grand-coalition government sponsored by Napolitano. On the negative side, the Presidential election process sends a message of political fragmentation. The fragmentation across parties in the Parliament was already well known, but the dramatic fragmentation within the centreleft Democratic Party was a negative surprise. Napolitano’s election comes after Bersani’s other candidates former PM Prodi and Franco Marini faced opposition from within Bersani’s own coalition. Given the political fragmentation, DB’s central case scenario is a government timeframe of just one or two years.

Early elections in October 2013 cannot be excluded, but now they appear much less likely now. The big question for the new administration is whether they have the appetite and political will to push through much needed economic reforms. An interesting few months still await even if the risk of fresh elections should have receded.

The G20/IMF/World Bank meeting wrapped up over the weekend, with the G20 simply reiterating its pledge to avoid competitive devaluation and saying that the BoJ’s monetary policy is “intended to stop inflation and support domestic demand”. Shortly after the meeting the BoJ’s Kuroda told reporters that “Winning international understanding gives me more confidence to conduct monetary policy appropriately. We will continue our qualitative and quantitative easing for the next two years”. The yen is a touch weaker against the dollar this morning (+0.2%) after depreciating 1.4% last Friday. Meanwhile the Nikkei (+2.1%) is off to a strong start to the week as the G20 hasn't really leaned on Japan to be more circumspect.

Elsewhere in Asia, markets are broadly stronger with most equity indices trading about half-a-percent higher overnight. The Shanghai Composite (-0.4%) is the main underperformer as Insurers were led lower by news of the Sichuan earthquake that saw at least 188 fatalities and over 11,000 injuries. The death toll from H7N9 avian influenza has also climbed to 20 (out of 102 confirmed infections) in China. WHO experts suspected human transmission ‘in very rare cases’ but this is clearly still an open issue for markets to keep a close eye on.

As newsflow from the Korean peninsula starts to fade there have been some snippets from the Middle East. In a week-long visit to the Middle East, US Defence Secretary Hagel pressed an American agenda on Sunday focused on deterring Iran (including a new weapons deal for Israel) coupled with caution that it would be premature for Israel to opt for unilateral strikes on Tehran's nuclear program. Mr Hagel however on Sunday acknowledged that there might be 'minor' differences between the US and Israel on the timeline in which Iran might develop nuclear weapons (NYT).

Looking in more detail at this week’s calendar, in the US the highlight is Friday's advance Q1 GDP reading. Consensus is calling for GDP growth of 3%. Outside of GDP, we have existing home sales today followed by new home sales tomorrow and durable goods orders on Wednesday.

In Europe, tomorrow’s flash PMIs for April will be the most closely watched data point for the week. Outside of that we have advance Eurozone consumer confidence numbers for April later today, Germany’s IFO survey tomorrow and on Friday we have March credit aggregates. The UK will report Q1 GDP on Thursday.

In Asia the BoJ’s meets on Friday – and with all the major announcements last meeting, there should be no major surprises from the central bank this week. However the BoJ will be updating its economic and inflation forecasts for 2013 and 2014 this week. In China, flash manufacturing PMIs are scheduled on Wednesday.



http://www.guardian.co.uk/business/2013/apr/22/eurozone-crisis-markets-rally-italian-president

Caterpillar, the construction and mining equipment giant, has warned that it expects the eurozone to shrink this year - and by more than the International Monetary Fund believes.

In its latest results, released to Wall Street a few minutes ago (pdf), Caterpillar criticised the way the eurozone crisis is being handled. It said:

We believe that economic policies in the Eurozone have not changed enough to address record high unemployment, a 20-year low in construction and over a year of declining output. We expect the Eurozone economy will decline close to 0.5 percent this year.

Last week, the IMF predicted that eurozone GDP would fall by 0.3% in 2013.

Caterpillar's wide range of industrial and construction products mean it is a useful economic gauge - as demand for the firm's diggers, engines and trucks rises and falls with the wider economy.

Caterpillar warned shareholders that it has cut its sales and profit outlooks for this year, following a drop in demand for its mining equipment.

Our revised 2013 outlook reflects a sales decline of about 50% from 2012 for traditional Cat machines used in mining and a decline of about 15% for sales of machines from our Bucyrus acquisition.

Despite that, Caterpillar sees stability in the US and China:

As we began 2013, we were concerned about economic growth in the United States and China and are pleased with the relative stability we have seen so far this year. In the United States, we are encouraged by progress so far and are becoming more optimistic on the housing sector in particular. 

In China, first quarter economic growth was slightly less than many expected, but in our view, remains consistent with slow growth in the world economy.

Bill Gross blasts UK and eurozone over austerity

The chief executive of bond-trading giant Pimco has laid into the fiscal progammes of the UK and parts of the eurozone today, as the austerity debate continues to rage.

Bill Gross called for new stimulus measures to get economic growth moving again,rather than worrying about short-term debt targets, in an interview with the Financial Times published this morning.

Gross warned:

The UK and almost all of Europe have erred in terms of believing that austerity, fiscal austerity in the short term, is the way to produce real growth. It is not.

You’ve got to spend money.

Gross's broad point is that it is a serious mistake to slash spending in an attempt to please the financial markets:

Bond investors want growth much like equity investors, and to the extent that too much austerity leads to recession or stagnation then credit spreads widen out – even if a country can print its own currency and write its own cheques.

In the long term it is important to be fiscal and austere. It is important to have a relatively average or low rate of debt to GDP....

The question in terms of the long term and the short term is how quickly to do it.

Gross's comments are topical - with today's data showing that total government debt across the eurozone has reached 90% of GDP and 17 EU countries running deficits above 3% despite several years of fiscal consolidation programmes.

(Portugal's deficit of 6.4%, for example, shows the challenge of reducing borrowing during a deep recession. Lisbon was forced into taking a bailout after its borrowing costs climbed into the danger zone after years of borrowing and weak growth)

This also looks like a u-turn from Gross.

Three years ago, the Pimco chief famously warned investors against buying UK government debt, warning that gilts were "resting on a bed of nitroglycerine". That forecast hasn't been born out yet -- 10-year gilt yields have strengthened to just 1.6% , from around 4% three years ago.

Debt/GDP table

And here's the key details of today's government debt figures from Eurostat (see 10.40am onwards).

Government debt, as a percentage of GDP, 2012

Germany: 81.9%

France: 90.2%

Britain: 90.0%

Spain: 84.2%

Italy: 127.0%

Greece: 156.9%

Portugal: 123.6%

Ireland: 117.6%

Cyprus: 85.8%

Slovenia: 54.1%

Euro area: 90.6%

EU27 85.3%

Germany tops the deficit pile

Germany outshone the rest of Europe by posting a budget surplus, of 0.2%.

Annual surpluses/deficits for 2012, via Eurostat

Germany: +0.2%


France: -4.8%


Britain: -6.3%


Spain: -10.6%


Italy: -3.0%

Greece: -10.0%

Portugal: -6.4%

Ireland: -7.6%

Cyprus: -6.3%

Slovenia: -4.0%

Euro area: -3.7%

European Union: -4.0%

Five Star Movement protests at Napolitano re-election

Beppe Grillo speaks during a press conference in Rome, Sunday, April 21, 2013. Photograph: Mauro Scrobogna/AP

Beppe Grillo, the head of the radical Five Star Movement, has blastedGiorgio Napolitano's re-election as "a cunning little institutional coup" by Italy's established parties.

Grillo told a press conference yesterday that:

They have stolen a year of time. I don't think we can accept this.

Napolitano could now dissolve parliament and call a snap election (a power not available to a president at the end of his term). That gives him more leverage over the various parties to force them to form a government.

The prospect of a PD-PDL alliance brought many Five Star supporters onto the streets on Saturday night:

Five-Star Movement's leader Beppe Grillo on the roof of a car in Rome yesterday. Photograph: GUIDO MONTANI/EPA

Activists of anti-establishment 5 Star Movement gather to stage a protest in Rome, Sunday, April 21, 2013. Photograph: Gregorio Borgia/AP

Good morning, and welcome to our rolling coverage of the eurozone crisis and other key event across the world economy.

There is relief in the financial markets this morning after the deadlock over Italy's next president was finally broken over the weekend.

Italian borrowing costs have fallen sharply, and shares are rallying across Europe.

After four failed votes, and with the centre-left Democratic Party (PD) on its knees, Georgio Napolitano was re-elected as president for an unprecented second term.

The 87-year old strolled to victory, with broad support from both PD and Silvio Berlusconi's People of Freedom (PDL) party. That could pave the way to a new government -- Italy has already been trapped in deadlock for two months since February's general election.

Optimism that Italy could be inching fowards has driven down its borrowing costs this morning as traders piled into its bonds.