Europe in shock after Italian election ends in impasse

Rome, February 26, 2013: Italy was at an impasse on Tuesday after an election seen as crucial for the eurozone failed to produce a clear winner and provided a shock debut for a populist anti-austerity party, rattling world markets and setting off alarm bells across Europe.

Italian stocks plunged and borrowing rates jumped after centre-left Democratic Party leader Pier Luigi Bersani scraped a razor-thin victory in the lower house of parliament and the Senate ended up with no political force winning a majority.

Bersani warned Italy was in "a very delicate situation" as the political gridlock became clear late yesterday and he was due to address the growing sense of crisis later today.

Stock markets in Europe, Asia and the United States also fell on fears of instability in the eurozone's third biggest economy as political analysts predicted either an unsteady coalition government or fresh elections within months.

A majority in both chambers of parliament is required to form a government, leaving Italy in a state of limbo with a hung parliament that is unprecedented in its post-war history.

The European Commission said it had heard "the message of concern" from Italian voters but expected the country to stick to its pledges of budget cuts and economic reforms.

"Italy has made commitments," Commission spokesman Olivier Bailly said at a news conference.

"As far as we are concerned these commitments remain." Silvio Berlusconi's coalition came a close second in the vote for the lower house, winning 29.18 per cent of the vote to 29.54 per cent for Bersani.

A third force - the populist, anti-government Five Star Movement (M5S) of former comic Beppe Grillo - won big, reaping a resounding protest vote from an electorate fed up with austerity policies and a grinding recession to score 25.5 per cent in the lower house.

"We're not against the world. We'll see reform by reform, law by law. If there are proposals that are compatible with our programme, we will evaluate them," Grillo told reporters.

European powerhouse Germany, as well as France, also reacted nervously, with German Foreign Minister Guido Westerwelle calling for a new government to be formed "as quickly as possible".

But analysts had a mostly pessimistic outlook.

"The country which most needs stability will not have a government that lasts for more than a few months," said James Walston, professor of international relations at the American University in Rome.

The big loser was outgoing prime minister Mario Monti, who won just 10.56 per cent in the lower house.

While he won praise in Europe, he was increasingly criticised at home for his austerity measures.