Amid the see-sawing results coming out of Rome on Monday, one thing was quickly very clear: against a backdrop of declining wages and pensions and a sharp rise in unemployment, a majority of Italians issued a clear basta to austerity.
In the final weeks of his campaign Mario Monti, the country’s technocrat prime minister, tried to soften his austerity message, promising "reasonable” tax cuts and admitting that his policies, although necessary to restore market confidence in Italy, had exacerbated the recession.
"The result is the absolute majority of Italians have voted against austerity measures, the euro and Europe,” Democrat party deputy leader Enrico Letta said. "This sends a very clear signal to Brussels and Frankfurt.”
"We will try our best to avoid chaos in Italy,” he added, expressing the hope that the Democrats would emerge after a long night of waiting with a majority in the lower house.
What Italians may also have voted for is a quick return to the polls, potentially after what is likely to be the difficult task of agreeing to change the country’s unpopular electoral law.
"If these numbers are confirmed then in the next [few] days there will be an earthquake – not just in Italy but in all Europe,” Letta said, warning of a "totally unstable government”.
While the make-up of the next parliament could depend on the very last votes counted, projections based on partial results released by the interior ministry suggested the centre-left could emerge with a majority in the lower house but without one in the senate.
The result, dubbed the "catastrophic scenario” by Roberto D’Alimonte, professor of politics at Luiss university, confounded opinion polls and the general consensus among investors that the Democrats would have the numbers to govern in the senate in a coalition with the centrist alliance led by Monti.
But the populist tax-cutting promises by Berlusconi, the former centre-right prime minister, combined with a surge in support for Grillo’s anti-establishment Five Star Movement, demonstrated that Italians were ready to take the risk of rejecting harsh austerity measures they see as imposed by a hostile Germany and Brussels.
Monti’s decision to shed his neutrality as an appointed technocrat and enter the political fray may have had the effect of denying a fourth election victory for the veteran Berlusconi by prising away some centre-right voters. But his likely result of less than 10 per cent will be seen as a resounding rebuff to his pro-Europe policies.
"This looks like a recipe for total gridlock,” commented Nicholas Spiro, a sovereign debt analyst. "On current projections, financial markets are facing the worst of both worlds in Italy: a full-blown political crisis in the eurozone’s third largest economy and a severe setback for the liberal economic agenda championed by Monti.”
With the country struggling through its longest postwar recession, doubts will be raised over Italy’s ability to deliver the tight budget measures agreed in its fiscal compact with the European Commission and reforms seen as needed to generate growth.
A late surge in the yield on Italy's benchmark bonds on Monday was seen as a foretaste of how markets may also test the resolve of the European Central Bank to defend Italy’s ability to repay its €2 trillion of public debt.
"There is clearly a risk of a hung parliament, which would be unequivocally a negative result,” Riccardo Barbieri, an economist with Mizuho International, said. He said the best that could be hoped for would be a "grand coalition” of the kind that had supported Mr Monti’s technocrat government over the past 15 months.
But in Italy, talk among politicians focused on the likelihood of a minority government that would have to return to the polls, perhaps later this year. Berlusconi has spoken of the possibility of forming a grand coalition with the Democrats, although this has been ruled out by Pier Luigi Bersani, leader of the centre-left.
Daniele Capezzone, spokesman for the centre-right People of Liberty, said the partial results pointed to the "miracle” of Berlusconi, who had staged a remarkable comeback.
But newly elected parliamentarians for the Five Star Movement, none of whom has political experience, said the result confirmed that Italians wanted real change. One of the demands of the movement – which could emerge as the party with most votes after the Democrats – is a halving of the size of parliament and a new electoral law based on proportional representation.
"If new elections are called, Grillo risks doing even better; [in any case], it means uncertainty for months,” Nicola Marinelli, portfolio manager for Glendevon King Asset Management, said.
Copyright the Financial Times 2013.