Italy in turmoil after election delivers hung parliament

Italy was plunged into turmoil on Monday (25 February) after parliamentary elections delivered a hung parliament with firebrand comedian, Beppe Grillo, holding the balance of power. The political paralysis, which seems certain to see Italians going to the polls for a second time, threatens to drag the eurozone's third largest economy back into crisis.

With nearly all votes counted, the centre-left coalition led by Pier Luigi Bersani's Democratic party (PD) had claimed a narrow victory in the polls for both chambers of the Italian parliament but was left well short of a majority in the Senate. After claiming 31.6 percent compared to 30.3 percent for Italy's populist former leader Silvio Berlusconi, the Democratic party was set to claim 123 Senate seats, to Berlusconi's 118.

Grillo's FIve Stars Movement took 53 seats on 24 percent, while the centrists led by EU-backed technocrat Mario Monti got only 19 seats. With 158 members needed for a Senate majority, Grillo's anti-establishment party would hold the balance of power.

Control of both parliamentary chambers is required to sustain a government. Meanwhile, Bersani was set to claim a majority in the lower house after defeating Berlusconi by a narrow 29.7 percent to 29.1 percent margin. Under Italian election law, the biggest party in the Chamber of Deputies is awarded 54 percent of the seats.(...)

The results are a disaster for outgoing technocratic PM Mario Monti, whose centrist coalition was relegated to a distant fourth place.(...) The vote also deals a huge blow to Bersani, who had promised to stick to the reform programme of Monti alongside targeted measures to stimulate job creation. Initial exit polls had pointed to a 5-7 point win for Mr Bersani. Senior EU officials had also been quietly hoping for a government led by Bersani and Monti. 

Despite the Monti reforms, which are expected to see Italy run a balanced structural budget in 2014, the country remains deep in recession, with Greece the only EU country to have a bigger debt burden. The uncertainty filtered through to the financial markets, with the euro hitting a six week low of 1.31 against the dollar. Meanwhile, yields on Italian 10 year bonds edged up four basis points to 4.49 percent.

Link to Euobserver