Italy faces post-vote stalemate, spooking investors

Reuters: The Italian stock market fell and state borrowing costs rose on Tuesday as investors took fright at political deadlock after a stunning election that saw a protest party lead the poll and no group had a clear majority in parliament.

“The winner is: Ingovernability” ran the headline in Rome newspaper Il Messaggero, reflecting the stalemate the country would have to confront in the next few weeks as sworn enemies would be forced to work together to form a government.

A woman walks next to Democratic Party electoral posters in Rome February 26, 2013. The Italian stock market fell and state borrowing costs rose on Tuesday as investors took fright at political deadlock after a stunning election that saw a protest party lead the poll and no group had a clear majority in parliament. REUTERS/Max Rossi (ITALY - Tags: POLITICS ELECTIONS)

In a sign of where that might lead, former prime minister Silvio Berlusconi indicated his centre-right might be open to a grand coalition with the centre-left bloc of Pier Luigi Bersani, which will have a majority in the lower house thanks to a premium of seats given to the largest bloc in the chamber.

Results in the upper house, the Senate, where seats are awarded on a region-by-region basis, indicated the centre-left would end up with about 119 seats, compared with 117 for the centre-right. But 158 are needed for a majority to govern.

Any coalition government that may be formed must have a working majority in both houses in order to pass legislation. World financial markets reacted nervously to the prospect of a stalemate in the euro zone’s third-largest economy with memories still fresh of the crisis that took the 17-member currency bloc to the brink of collapse in 2011. The Milan bourse was down more than four percent at its opening and the spread between yields on 10-year Italian and German government bonds widened to 338.7 basis points, the highest since December 10. An ally of conservative German Chancellor Angela Merkel urged Italy to stick with reforms pursued by the outgoing technocratic emergency government of Mario Monti.

However, the poor showing by Prime Minister Monti’s centrist bloc reflected a weariness with austerity that was exploited by both Berlusconi and comic Beppe Grillo; his anti-establishment 5-Star Movement won more votes than any other single party, taking 25 percent nationally. Bersani’s allies helped his centre-left bloc win the lower house by just 125,000 votes.

Berlusconi, a media magnate whose campaigning all but eroded Bersani’s once commanding lead, said he was not worried about market reaction and played down the significance of the spread.

In a telephone call to a morning television show, he said: “Italy must be governed.” He ruled out a deal with Monti but said he “must reflect” on a possible deal with the centre left: “Every (political side) must be prepared to make sacrifices.”

The euro skidded to an almost seven-week low against the dollar in Asia on fears about the euro zone’s debt crisis. It fell as far as $1.3042, its lowest since January 10.

Another indication of investors’ reaction to the results will come later on Tuesday when the Treasury auctions 8.75 billion euros in 6-month bonds. Bersani claimed victory in the lower house and said it was obvious that Italy was in “a very delicate situation”.

Grillo, however, showed no immediate willingness to negotiate. Commentators said all his adversaries underestimated the appeal of a grassroots movement that called itself a “non-party”, particularly its allure among young Italians who find themselves without jobs and the prospect of a decent future.

The 5-star Movement’s score of 25.5 percent in the lower house was just ahead of the 25.4 percent for Bersani’s Democratic Party, which ran in a coalition with the leftist SEL party, and it won almost 8.7 million votes overall – more than any other single party.