Parties struggle to form Italian government

Pier Luigi Bersani and his centre-left allies appears to have won a narrow victory in the lower house of parliament, while the Senate looks split with no party in control. Silvio Berlusconi, the former Italian premier whose centre-right coalition did better than expected, is a key player since his coalition is now the second-biggest bloc in the upper chamber.

Comic-turned-political leader Beppe Grillo, whose 5 Star Movement capitalised on a wave of voter disgust with the ruling political class, had a surprisingly strong showing. His bloc of seats in parliament could prove crucial in making any coalition government viable.

The two-day election on Sunday and Monday was also a clear rejection of the previous technocratic government led by Mario Monti. That government enacted wide-ranging reforms to the budget and the economy.

Though its borrowing rates have fallen in financial markets, the cost to Italians has been high, with Italy mired in recession and unemployment on the rise.

Mr Berlusconi has already ruled out an alliance with Mr Monti, his predecessor, whom he blamed for driving Italy deeper into recession.

A few seats in Parliament based on Italians’ voting abroad still remain to be decided, but their numbers will not ease the gridlock. European leaders pleaded with politicians in Italy to quickly form a government to continue to enact reforms to lower Italy’s critically high debt and spare Europe another spike in its four-year financial crisis.

Mr Bersani said he was not opening talks with any potential partners until he submits his programme to Italy’s president, who taps a candidate to form a government.

Stinging from a loss of some four million votes compared to the last election in 2008, Mr Bersani has not yet identified who he could try to form alliances with. But top officials in his Democratic Left (PD) party were quick to rule out any deal with Mr Berlusconi.

“As far as I go, absolutely not,” Stefano Fassina, a PD official, said of a possible Bersani-Berlusconi alliance.

Italy’s FTSE MIB index closed trading yesterday 4.89% lower at 15,731, having earlier been nearly 5% down. Some of its banking stocks were briefly suspended after precipitous falls at the bell.

Whether the negative market reaction extends further into the week may hinge on how quickly a solution is reached in Italy.

Mr Berlusconi insisted that a government could be formed and called on Italians to ignore the “crazy” markets.

“Markets go their own way. They are independent and also a little crazy,” he said, adding that a government can be cobbled together, if rival politicians are willing to “make some sacrifices”.

Mr Grillo said his forces would seek to thwart any Bersani-Berlusconi deal. Raising the spectre of early elections, he predicted any such coalition will “last seven, eight months. The economy won’t let them escape”.

Mr Bersani himself later made subtle overture towards Mr Grillo’s forces, conceding that the centre-left campaign had not gone deep enough for change. “We finished first, without winning,” he conceded.

Italy is hugely important for the future of the euro, and its apparent stability over the past six months has been one of the reasons that concerns over the currency have eased. Of the 17 European Union countries that use the euro, Italy has the second-highest debt burden as a proportion of its gross domestic product, at 127%.

Only Greece’s is higher. Italy has to spend around 80 billion euro a year just to service its debt.

The worry across financial markets is that Italy’s appetite for reform may wane and its debt situation may deteriorate.

Though Italy’s annual borrowing – its budget deficit – is relatively small compared with other euro countries at 3% of its annual gross domestic product, its overall debt stands at a colossal two trillion euro.