Italy hits political gridlock after national elections

By Colleen Barry and Frances D’Emilio
Associated Press

ROME — Italy faced political paralysis Monday as near-complete results in crucial national elections showed no clear winner and raised the possibility of a hung parliament.

The uncertainty bodes ill for the nation’s efforts to pass the tough reforms it needs to snuff out its economic crisis and prevent a new round of global financial turmoil.

The chaotic election scenes in the eurozone’s third-biggest economy quickly snaked around globe — sending the Dow Jones index plunging more than 200 points in its sharpest drop since November and causing Tokyo’s red-hot benchmark index to sink nearly 2 percent at open.

A major factor in the murky result was the astonishing vote haul of comic-turned-political leader Beppe Grillo, whose 5 Star Movement has capitalized 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, to roil the Italian ballot.

Berlusconi’s alliance was neck-and-neck with center-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 daytime Tuesday, at 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. As the eurozone’s third-largest economy, 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’s likely to change now.

“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 new elections 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 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 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 didn’t cast ballots, and a low turnout is generally seen as penalizing established parties. The turnout, at under 75 percent — in a nation where it has historically been above 80 percent — was the lowest in national elections since the republic was formed after World War II.

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

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.

As the eurozone’s third-largest economy, its problems can rattle market confidence in the whole bloc and analysts have worried it could fall back into old spending habits.

Bersani, a former communist, has reform credentials as the architect of a series of liberalization measures and has shown a willingness to join with 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 Bersani would team up in a “grand coalition” with his arch-enemy Berlusconi.

Grillo’s camp also played down the prospect of cooperation with the ex-premier, who has been embroiled in sex and corruption scandals.

“Dialogue with Berlusconi? It is very difficult to imagine that Berlusconi would propose useful ideas (for the movement),” said 5 Star Movement candidate Alessandro Di Battista at Rome headquarters. “It never happened until now, but miracles happen.”

Italy’s borrowing costs have reflected the optimism that the country will stick to its reform plans.

The interest rate on Italy’s 10-year bonds, an indicator of investor confidence in a country’s ability to manage its debt, fell to 4.19 percent in afternoon trading Monday.

Last summer, at the height of concern over Italy’s economy, that interest rate was hovering at about 6.36 percent.

Milan’s stock exchange closed slightly higher, with the benchmark FTSE MIB up 0.73 percent to 16,351 points.