In a surprise move, Italian Prime Minister Mario Monti confirmed that he would resign from office as soon as Parliament approves the current Budget and announced a general election, which will be held a few weeks earlier than in April as scheduled. Mr Monti’s decision came on the heels of the withdrawal of support by the People of Freedom (PDL) party of former Prime Minister Silvio Berlusconi.

The PDL is the largest party in the cross-party coalition that has underpinned his unelected, technocrat government since November 2011. Although Mr Monti’s austerity measures are high-ly unpopular with Italians, his steady hand has, to a great degree, restored investor confidence in the country.

Meanwhile, the ZEW index of German analyst and investor sentiment increased sharply in December, underpinned by encouraging economic data from the US. In fact the index entered positive territory for the first time since last May, as economic sentiment surged to 6.9 points from -15.7 in November. This was well above the consensus forecast.

Separately, a measure of current conditions in Germany rose to 5.7 in December from 5.4 in November, exceeding expectations of 5.0.

In the US, the Federal Reserve (Fed) announced a new round of monetary easing and took the unprecedented step of indicating that interest rates would remain close to zero until the unemployment rate falls to at least 6.5 per cent.

This was the latest in a series of unorthodox measures taken by central banks around the world, as major economies face anaemic recoveries in the aftermath of the global financial crisis.

The Fed said it expects to hold interest rates at the current record low levels until its new threshold on unemployment was reached, as long as inflation does not threaten to break above the 2.5 per cent threshold and inflation expectations are contained.

This article was compiled by Bank of Valletta plc for general information purposes only.

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