The head of the International Monetary Fund (IMF) today called for political clarity in efforts to tackle the debt crisis that has gripped Italy, saying uncertainty around who would succeed Prime Minister Silvio Berlusconi was fuelling market volatility.
Christine Lagarde was speaking during a visit to China, as Rome politicians were scrambling to find a replacement for Berlusconi, who has said he will step down when parliament approves reforms aimed at placating markets.
"No one exactly understands who is going to come out as the leader. That confusion is particularly conducive to volatility," Ms Lagarde told a news conference in Beijing.
"So from my perspective, political clarity is conducive to more stability and my objective from the fund's point of view is better and more stability."
China - which holds an estimated 25 per cent of its $3.2 trillion of foreign exchange wealth in euro-denominated assets - is equally keen to see clarity and stability take hold in the euro zone, the country's single biggest export market.
"Recently Europe has been plagued by the sovereign debt crisis. We hope European countries will overcome the temporary difficulties, stabilise the domestic financial markets and push for Europe's economic recovery and growth," Foreign Ministry spokesman Hong Lei said at a regular news briefing.
Italian 10-year bond yields were trading above 7 per cent today, a level most market economists consider unsustainable for financing debt of more than €2 trillion, raising fears of a break-up of the euro zone.
Ms Lagarde, a former French finance minister, declined to comment on reports that German and French officials have discussed plans for a radical overhaul of the European Union to create a more integrated and potentially smaller euro zone.
She also said she believed Chinese authorities were prepared to let the yuan appreciate further, as demanded by many US and other western politicians who accuse Beijing of holding its currency artificially low to give an unfair advantage to its exporters.
"My understanding is that the authorities are prepared to let that appreciation continue in the months and years to come," she said.
"Certainly from our perspective, with the goal of stability and the solid, balanced and sustainable growth that we pursue, clearly that's welcomed and encouraged."
Ms Lagarde, who met vice Premier Wang Qishan and is due to meet Premier Wen Jiabao, said she had "in-depth discussions" with China's central bank chief Zhou Xiaochuan, a leading advocate of internationalising the Chinese yuan currency.
Reuters