Italy facing political gridlock

The chaotic election scenes in the eurozone’s third-biggest economy quickly had ripples around the world – sending the Dow Jones index plunging more than 200 points in its sharpest drop since November and causing Tokyo’s benchmark index to sink nearly 2% at opening.

A major factor in the murky result was the astonishing vote haul of comic-turned-political leader Beppe Grillo, whose Five Star Movement has capitalised on a wave of voter disgust with the ruling political class.

That has coupled with the surprise return as a political force of billionaire media mogul Silvio Berlusconi, who was driven from the premiership at the end of 2011.

Mr Berlusconi’s alliance was neck-and-neck with centre-left leader Pier Luigi Bersani’s coalition for both parliament’s lower house and the senate.

The ballot was so close that final official results were not expected until later today at the earliest.

The decisions Italy’s government makes over the next several months promise to have a deep impact on whether Europe can decisively stem its financial crisis. Its problems can rattle market confidence in the whole bloc and analysts have worried it could fall back into old spending habits.

The unfolding uncertainty raised the possibility of new elections in the coming months, the worst possible outcome for markets that are looking to Italy to stay the course with painful but necessary reform.

While Italy’s postwar history has largely been one of revolving-door governments, it has never seen a hung parliament. Experts said that was now likely to change.

“This has never happened before,” said James Walston, a political science professor at American University of Rome. He predicted such a swirl of political chaos that a new election may need to be called as soon as the new legislature chooses the nation’s next president this spring.

The Italian election has been one of the most fluid in the last two decades thanks to the emergence of Mr Grillo’s 5 Star Movement, which has throbbed with anger at politics as usual. The movement came against a backdrop of harsh austerity measures imposed by technocrat premier Mario Monti – who has fared miserably in the elections.

While Mr Grillo trailed the alliances of the two biggest mainstream forces, his movement looked set to become the biggest single party in parliament’s lower house – a stunning result for a protest campaign that is just over three years old.

Many eligible voters did not cast ballots, and a low turnout is generally seen as penalising established parties. The turnout, at under 75% – in a nation where it has historically been above 80% – was the lowest in national elections since the republic was formed after the Second World War.

Disgust with traditional party politics probably turned off voters, although snow and rain – this was Italy’s first winter time national vote – also could be a factor.

Mr Bersani, a former communist, has reform credentials as the architect of a series of liberalisation measures and has shown a willingness to join with Mr Monti, if necessary. But he could be hamstrung by the more left-wing of his party.

His party would have to win both houses to form a stable government and given the uncertainty of possible alliances, a clear picture of prospects for a new Italian government could take days.

It is all but impossible that Mr Bersani would team up in a “grand coalition” with his arch-enemy Mr Berlusconi and Mr Grillo’s camp also played down the prospect of co-operation with the ex-premier, who has been embroiled in sex and corruption scandals.

With 99.7% of the lower house vote counted, the Bersani camp had had 29.55% of the vote, to Mr Berlusconi’s 29.17%. Mr Grillo had 25.54 and Mr Monti’s alliance 10.56.

In the senate, near complete Interior Ministry figures showed Mr Bersani and his allies had nearly 32% while Mr Berlusconi and his coalition partners were pulling nearly 31%. Mr Grillo had more than 23%. The overseas senate ballot was to be added to the total later today.

More important than the overall national numbers, however, was the state-of-play in large swing regions – and Mr Berlusconi was projected to win those.

Italy’s complex electoral law calls for the senate seats to be divvied up according to how candidates fare region by region and Mr Berlusconi appeared to be winning big in Lombardy, and also ahead in the closely watched regions of Sicily and Campania, around Naples.

A Berlusconi triumph in those key regions would probably hand him control of the upper chamber, which in Italy’s legislative system is as powerful as the lower house.

When he was forced out of office in November 2011, he was widely assumed to have joined the political dead. At 76, blamed for mismanaging the economy and disgraced by criminal allegations of sex with an underage prostitute, a comeback seemed impossible.

But one thing has become axiomatic about the billionaire media mogul in his 20 years at the centre of Italian politics: never count him out.

This time, in an age of wrenching austerity, he had a very simple campaign strategy: throw around the cash.

He has promised to give back an unpopular property tax imposed by Mr Monti - with money from his own deep pockets if need be.

Even his purchase of star striker Mario Balotelli for his AC Milan soccer team was widely seen as a ploy to buy votes.