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Split vote throws Italy into political gridlock

A portrait of Silvio Berlusconi hangs at People of Freedom party (PDL) headquarters in Rome on February 25, 2013
A portrait of Silvio Berlusconi reading "love always wins over envy and hate" hangs at People of Freedom party (PDL) headquarters in Rome on February 25, 2013. In the 305-seat Italian Senate, preliminary vote results showed Berlusconi's coalition could wi

Italy headed for gridlock and financial markets tumbled with a stalemate in parliament between right and left after critical elections in which the real winner might be a new protest party calling for a referendum on the euro.

Democratic Party leader Pier Luigi Bersani and his leftist coalition scraped a razor-thin victory in the lower chamber of parliament. They won 29.55 percent to 29.18 percent for Silvio Berlusconi, with 99.9 percent of the ballots counted.

The victor's bonus will give the left a handy majority in the lower house, the Chamber of Deputies.

But in the 305-seat Senate, preliminary results from the interior ministry showed Berlusconi's coalition could win 110 seats to the left's 97 seats, with neither group winning a majority.

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.

"It is clear to everyone that this is a very delicate situation for the country," Bersani said late Monday.

Democratic Party leader Pier Luigi Bersani arrives at a polling station on February 24, 2013 in Piacenza
Democratic Party leader Pier Luigi Bersani arrives at a polling station on February 24, 2013 in Piacenza. Bersani and his leftist coalition scraped a razor-thin victory in the lower chamber of parliament.

US stocks closed sharply lower with the Dow Jones Industrial Average down 1.55 percent on the news and stocks in Tokyo opened 1.83 percent lower.

"Political uncertainty has returned," SMBC Nikko Securities general manager of equities Hiroichi Nishi said at the start of trading on Tuesday.

The newcomer Five Star Movement (M5S) led by former comedian turned activist Beppe Grillo, who has stirred anger at politicians and budget cuts, became the country's third political force, creating dozens of new lawmakers.

Comparing single parties without coalitions, the M5S is now the biggest party in the lower house with 25.55 percent to the Democratic Party's 25.41 percent -- a shock success that analysts predicted would reverberate around an austerity-weary Europe.

"This is fantastic! We will be an extraordinary force!" Grillo said Monday in a phone interview on his website, warning mainstream politicians they would "only last a few more months."

"We'll have 110 people in parliament and we'll be millions outside," said the campaigner, who has packed city squares across Italy with his rallies.

European capitals fear the lack of a clear winner could bring fresh instability to the eurozone's third largest economy after Germany and France and plunge it back into the debt crisis storm.

"A stalemate between the two houses of parliament would add a noisy element of instability to the political mix, including possibly new elections eventually," analysts at German bank Berenberg said in a note to investors.

Journalists await vote results at the headquarters of Silvio Berlusconi's political party in Rome on February 25, 2013
Journalists wait for vote results at the headquarters of Silvio Berlusconi's political party in central Rome on February 25, 2013. Italy headed for gridlock and financial markets tumbled with a stalemate in parliament between right and left.

Some Democratic Party officials suggested fresh elections may have to be held within a few months after a reform of Italy's complex electoral laws. Others said some form of agreement could be found with the anti-austerity Five Star Movement.

Political analysts suggested a possible return to the grand coalition agreement between right and left seen under Monti over the past 18 months -- or even dissolving the Senate alone to hold fresh elections for only one chamber of parliament.

"This is a shock vote that gives us a blocked parliament," ran a headline on the website of Italy's top-selling daily, Corriere della Sera.

Massimo Razzi, columnist for La Repubblica daily, said the elections had made Italy "ungovernable".

In contrast to Grillo's shock success, the outgoing Monti won just 10.56 percent in the lower house. While he won praise in Europe, he was increasingly criticised at home for his austerity.

The premier said he was "satisfied" with the results and called on any future government "not to dissipate the sacrifices made by Italians.

Italian Prime Minister Mario Monti gives a press conference at his headquarters in Rome on February 25, 2013
Italian Prime Minister Mario Monti gives a press conference at his headquarters in Rome on February 25, 2013. Political analysts suggested a possible return to the grand coalition agreement between right and left seen under Monti over the past 18 months.

"A government must be guaranteed for the country," he said.

Angelino Alfano, national secretary of Berlusconi's People of Freedom party, called the result "extraordinary".

"I think these elections show that people who thought... Silvio Berlusconi was finished should think again," he said.

Investors had hailed early exit polls which suggested a clear victory for the left. Stocks in Milan jumped by more than 3.5 percent.

The rally slowed however and stocks went into negative territory after it became clear the race was too close to call.

Stocks finally closed up just 0.73 percent.

The difference between the yield on Italian and German 10-year government bonds widened to 293 basis points on Monday from about 255 points before polls closed, indicating market jitters.

The down-to-earth Bersani, the 61-year-old son of a car mechanic from northern Italy, has told Italians he is the best man to help promote a growth agenda for Europe and "turn the page" after Berlusconi.

The former communist has said he will abide by the budget discipline enforced by Monti, a former Eurocrat roped in after Berlusconi was pushed out at the height of Europe's financial crisis in 2011.

But Berlusconi waged a populist campaign, blaming Germany for Italy's economic woes and promising to refund an unpopular property tax to Italians -- out of his own pocket if needed.

The 76-year-old media tycoon, who was mobbed by three topless feminists in a protest as he cast his ballot on Sunday, is a defendant in two trials -- for tax fraud and for allegedly having sex with an underage prostitute.

He is also the only post-war prime minister to have served out a full five-year term. The Milan native has been prime minister three times in a turbulent 20 years in politics.

As he cast his ballot in Rome on Monday, 77-year-old Luciano Pallagroni sighed: "We're living a tragi-comic moment, with lots of fantastical promises. I don't think whoever wins will have a stable majority."

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