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Markets slide on Italy impasse

- Silvio hints his party may form coalition with Centre-Left outfit

Rome, Feb. 26: Markets dropped and Italians awoke today to headlines screaming “Ungovernability” and “Hung Parliament” a day after national elections to replace the technocratic government of caretaker Prime Minister Mario Monti failed to produce a majority capable of governing the third-largest economy among those using the euro currency.

Former Prime Minister Silvio Berlusconi hinted that his Centre-Right People of Liberty Party might be inclined to form a grand coalition with the Centre-Left Democratic Party of Pier Luigi Bersani, a prospect that would be ideologically contradictory but which, experts said, might be the only governing coalition possible, given the outcome of the ballot.

Results indicated that the Democratic Party would have a majority in the lower house, the Chamber of Deputies, thanks to a premium of bonus seats given to the largest bloc. But it would only have about 119 seats in the Senate, compared with 117 seats for Berlusconi’s party, far short of the 158 required to govern.

Under Italy’s electoral law, front-runners are awarded bonus seats in the lower house based on national totals and in the Senate based on regional total, which can produce split results. That happened yesterday when Berlusconi’s party won by about three percentage points in the powerful Lombardy region after it formed an alliance with the Northern League Party.

The outstanding success of the elections was the Five-Star Movement of comedian Beppe Grillo, which led a grass-roots and Web-based campaign and won more votes than any other party, with about 25 per cent of the ballot. The group drew support from a powerful protest vote as Italians from both Right and Left — and the wealthier north and poorer south — were drawn to Grillo’s Opposition to austerity measures and appeal to oust the existing political order. It has indicated that it is not inclined to form a governing alliance with Bersani or Berlusconi.

Analysts said earlier that the best-case scenario would be a shaky coalition government, which would once again expose Italy and the euro zone to turmoil if markets question its commitment to measures that have kept the budget deficit within a tolerable 3 per cent of gross domestic product.

News of the stalemate sent tremors through the financial world, sending the Dow Jones industrial average down more than 200 points yesterday and shaking confidence again today, when the Italian stock market fell by some 4.5 per cent.

Although analysts blamed the large protest vote on Italy’s political morass and troubled electoral system, the results were also seen as a rejection of the deficit-reduction strategy set by the European Commission and the European Central Bank for a country deemed too big to fail and too big to bail out.

“No doubt Italy has an imperfect political culture, but this election, I think, is the logical consequence of pursuing policies that have dramatically worsened the economic and social picture in Italy,” said Simon Tilford, the chief economist of the Centre for European Reform, a London research institute. “People have been warning that if they adhere to this policy there will be a political cost, there will be backlash,” he added. “It couldn’t have taken place in a more pivotal country.”

 
 
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