In the end, the joke's on Italy

A comedian, a philanderer, a communist and an economist walk into a bar. In Italy, they call that an election. And in Italy, the economist finishes last.

Italian voters have been to the polls and have delivered a damning verdict on their country's harsh austerity measures of the past year and a half.

The precise outcome of the crucial elections remains unclear. Early counting suggests the centre-left coalition led by former Communist Party leader Pier Luigi Bersani will win a majority in the lower house.

But a complex system of regional-based voting in the Senate makes it notoriously difficult to predict an outcome in the upper house – a smoke signal would be clearer. Early indications are that the coalition led by 76-year-old billionaire and former Prime Minister, Silvio Berlusconi, may have done enough to secure control of the upper house.

Under Italian law, a political coalition must have a majority control of both houses to govern. The possibility of a hung government leaves open the destabilising possibility of fresh elections in coming weeks, or, at best, days or weeks of delicate negotiations between parties to bolster coalition numbers to governable levels.

In the meantime, Europe's third largest economy remains mired in recession, expected to shrink 1 per cent this year according to recently revised forecasts by the European Commission.

Italy's debt burden remains around €2 billion and will requires around €400 million of debt to be rolled over this year.

Despite this, financial markets have looked fondly on the administration of Prime Minister Mario Monti, a technocrat installed to power after the resignation of Berlusconi in November 2011. Monti is credited with bringing stability to Italian governance after the bunga bunga era and successfully coaxing down the cost of Italian government borrowing from eyewatering highs above 6 per cent.

But Italian voters have decided to do things their way instead.

A quarter of Italians lodged their vote at the weekend for a party led by a television comedian and author of Italy's most popular blog, Beppe Grillo.

Grillo, head of the anti-establishment, grassroots 'Five Star Movement', is not running for election. He can't, having been convicted of manslaughter for the deaths of three passengers in a car accident in 1980.

But his movement has attracted strong popular support, heightened by a high-profile 'Tsunami Tour' by the engaging Grillo of 77 cities in seven weeks in his camper van. Hundreds of thousands of Italians – mostly young, male and unemployed – attended his 'Vaffanculo Day' rallies (a less than polite translation would be "f*** off day”).

Grillo's message is a radical anti-politics, anti-bank message that taps into the deep discontent many Italians feel at the humiliating double act of a deep recession and budget austerity.

Grillo's popularity in these polls represents a rather large 'f*** off' by Italian voters to the program of budget cuts and austerity of the Monti administration.

The other wild card – the political resurgence of former Prime Minister Silvio Berlusconi, still on trial for the abuse of a minor – also reveals the deep-seated resentment many Italians feel towards the perceived European Union-imposed austerity of the Monti regime.

Berlusconi is not running for prime minister either, but successfully captured the public imagination for his Freedom People party with a promise to rebate Italian homeowners for a new tax imposed on their homes by the Monti administration.

Berlusconi has even jokingly said he would bankroll it from his own considerable fortune.

All jokes aside, at a fundamental level, these elections mark a strong rejection in Europe's third biggest economy of government by technocrat.

They are a reminder that real economies are run by governments selected by the people for the interests of the people. And it's hard to convince people that their government should stand by, cutting spending and raising taxes when 11 per cent of working aged adults are on the jobless line.

Markets don't like it. The US market sold off again last night.

The euro has fallen below 1.31 for the first time in six weeks.

The yield on ten-year Italian bonds jumped from 4.17 per cent to 4.45 per cent.

Markets are spooked that the market-friendly reforms and tight budget controls of the Monti administration may now give way to a period of prolonged political instability and deadlock.

At best, whichever coalition of parties assumes power will do so with a strong message from their constituent that Italians are no longer prepared to swallow the bitter pill of budget austerity so willingly.

Markets are right to be afraid.

Jessica Irvine is the National Economics Editor of News Limited's metropolitan daily newspapers, including The Daily Telegraph, The Herald Sun, The Courier Mail and The Adelaide Advertiser.