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Italy's Deadlocked Election Worries EU, Hurts Financial Markets


A television screen shows Democratic Party leader Pierluigi Bersani at a media center in Rome, February 26, 2013.

A television screen shows Democratic Party leader Pierluigi Bersani at a media center in Rome, February 26, 2013.

France and Spain have expressed concern about Italy's deadlocked parliamentary election, an outcome that could undermine confidence in the euro by delaying Italian efforts to revive the eurozone's third largest economy.

French Finance Minister Pierre Moscovici and Spanish Foreign Minister Jose Manuel Garcia-Margallo each described the Italian political situation as worrying.

Results of the two-day vote that ended Monday showed no clear winner, raising the possibility of a hung parliament.

Italian comedian-turned-politician Beppe Grillo's anti-establishment 5-Star Movement beat expectations by becoming the largest single party in the lower house of parliament, or Chamber of Deputies.

But Grillo's three-year-old movement finished behind the country's main center-left and center-right alliances, whose vote tallies for the chamber were almost even at 29 percent.

Incumbent Prime Minister Mario Monti's centrist alliance earned just 10 percent of lower house votes, despite receiving praise from Italy's eurozone partners for pursuing austerity measures and stabilizing Italian finances over the past year.

European worries

Other members of the 17-nation eurozone want to avoid a repeat of a 2011 Italian debt crisis that weakened investors' faith in the shared currency.

European Commission spokesman Olivier Bailly urged Italy to stay on the path of economic reform.

"We would like to underline our full confidence toward the Italian authorities about their capacity to find and establish a political majority that will continue to deliver a growth and job agenda which is basically what Italy needs," Bailly said.

The prospect of political limbo in Rome weighed on world stock markets.

Investors sell

Milan's main index lost almost five percent on Tuesday, while key indices fell two percent in Paris, Frankfurt and Tokyo and one percent in London and Hong Kong.

On Wall Street, concerns about the Italian election contributed to a 1.5 percent drop in the Dow Jones Industrials on Monday. The index recovered some ground on Tuesday.

Fund manager Jeremy Gaudichon with French bank KBL Richelieu told Reuters that investors were troubled by what he called the Italian election's "confused" outcome.

"The uncertainty in Italy gives a very bad signal to the market," he said. "As we know, Italy needs to implement reforms to curb the trajectory of the debt and to do that, Italy needs political stability. And with the result of this election, we are not sure about this."

The euro weakened to a seven-week low against the dollar late Monday, dropping to almost $1.30 before recovering slightly.

Rome-based economist Giuseppe Ragusa of LUISS University, also speaking to Reuters, said the financial fallout may be brief.

"The hope is that it is only going to last a few days and eventually Italian politicians are going to be able to resolve this uncertainty with a great sense of responsibility," Ragusa said.

Coalition puzzle

Under Italy's political system, a ruling coalition must have majorities in both houses in order to pass legislation.

The center-left coalition of Pier Luigi Bersani will have a majority in the 630-seat Chamber of Deputies due to a rule that gives the largest bloc a bonus of seats.

His coalition's lower-house vote tally was only 0.3 percent ahead of the center-right alliance of former prime minister Silvio Berlusconi.

The Italian Center for Electoral Studies said Tuesday that it projects Bersani's faction also will be the largest in the Senate, with 121 seats compared to 117 for Berlusconi. But both groups fell short of a 158-seat majority.

Political comeback

Berlusconi's stronger-than-expected showing marks a reversal in his political fortunes, which suffered a major blow when he quit as prime minister in November 2011 under criticism for his handling of the debt crisis.

Berlusconi later faced trial on charges of tax fraud and having sex with a minor. But, the tycoon campaigned strongly against Monti's austerity policies and even offered to refund an unpopular tax using his own funds.

Speaking Tuesday on Italian television, Berlusconi said he will "reflect" on the idea of forming a "grand coalition" with Bersani's center-left.

Without such a coalition, Italy may be forced to call another election in a few months; something Berlusconi said would "not be useful."

Bersani, a former Communist, has been one of Berlusconi's strongest opponents.

As for Grillo, the centrist said Tuesday that he does not want "messy deals" with any of the established parties that he campaigned against and that his supporters despise.

Speaking at his home in Genoa, he also vowed to block those parties from creating a grand coalition.
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