Closed Italian elections aftermath

Italy ‘s parliamentary elections ended in political deadlock on Monday night with little hope of a clear majority. Join the FT as it covers the unfolding political and economic drama. By Lina Saigol.

Good Morning.

World financial markets are reacting nervously this morning as Italy faces a long period of political instability.

The Milan bourse was down more than 4 per cent at the opening. The spread between yields on 10-year Italian and German government bonds widened to 338.7 basis points – the highest level since December.

Giulia Segreti in the FT’s Rome office sends this after Silvio Berlusconi’s conceded the lower house vote:

Silvio Berlusconi said a return to the ballot would not be “useful” and that Italy “does not deserve not being governed”. He called on a wide sense of responsibility “for the good of Italy” and the need “for sacrifices”, but ruled out an agreement with Mario Monti, outgoing prime minister.

“Mr Monti’s austerity policies has put the country in a dangerous situation, with a recessive spiral, the rise of debt and unemployment…”

According to Mr Berlusconi, Beppe Grillo’s success was due to the discontent “generated by the show of politics”, dragged into many scandals in the last months.

Our Rome office has spoken to Riccardo Barbieri, chief European economist at Mizuho International, who has this to say:

“The only viable solution to form a government appears to be a repeat of the grand coalition that supported the Monti government, that is, a PD-Monti-Berlusconi alliance”.

“Such a government would probably have a short horizon and focus primarily on the economic priorities and on reforming the political system,” adds Mr Barbieri, commenting that however, “there seems to be very limited scope for the deep reforms that Italy needs”

“All this clearly points to a high degree of uncertainty which, together with sharply rising bond yields, will delay the slow economic recovery that we otherwise expected for the second half of the year and for 2014,” he explains. .

A report by Barclays Research too sees the option of a grand coalition as the best one to overcome the instability in parliament created by the outcome of the elections. .

“Italy cannot risk being trapped in a political impasse for too long. Should that condition persist and the parties not be able to agree on a grand coalition, we think the likelihood of Italy applying for a precautionary credit line would increase,” reads the reports.

A reform of the current electoral rules should be the priority of an alliance government in order to be able to secure an outright majority in both chambers of parliament as well as allowing voters to elect their representatives directly.

However, “Under this scenario, we think that new elections might be held by the end of this year/beginning of next,” it adds. .

UBS analysts Geoffrey Yu and Gareth Berry have just put a research note out:

Counting seems to have concluded in Italy’s general election, but a victor has yet to be formally declared. Nevertheless the contours of the new political landscape are plain to see. Bersani seems to have won control of the lower house taking 29.54% of the vote, narrowly beating Berlusconi into second place with 29.18% of the vote. However even a Bersani-Monti coalition will not have enough seats to command a majority in the upper house. Legislation cannot be passed without approval from both chambers so Italy’s political system is now in stalemate. It could take several weeks for the political dust to settle, and even a re-run of the election cannot be ruled out. The parallels with Greece’s election outcome in May 2012 have not escaped the attention of investors ? the euro has already fallen sharply over the past 24 hours with EURJPY in particular dropping over 6 big figures at one point. Yet the price action does not seem overdone in our view, given the pre-election air of complacency (encouraged further by exit polls which initially pointed to a benign outcome). EURUSD could be guided lower still by the performance of Italian bond and equity markets unless Fed Chairman Bernanke delivers a particularly dovish testimony today.

Jamie Chisholm, the FT’s Global Markets Commentator has been analysing the market reaction and how the inconclusive result has sparked concerns that one of Europe’s largest economies will have difficulty tackling its budget, triggering a cascade of interlinked moves as traders try to pare long “risk” positions following several months of gains.

Rome’s implied borrowing costs have spiked. Gold is up $3 to $1,597 an ounce.

“Risk sentiment turned negative on the inconclusive Italian election and fears of sustained instability for the country and eurozone as a whole,” Crédit Agricole said in a research note.

Growth-focused products are in retreat, with copper off 0.5 per cent to $3.53 a pound and Brent crude down 99 cents to $113.45 a barrel.

Equities in particular are paying the price for recent ebullience. The FTSE All-World index, which last week closed at a new four-and-a-half-year high of 235.9, is down 0.6 per cent to 230.1, after the Asia-Pacific region slid 0.8 per cent and as the FTSE Eurofirst 300 suffers a 1 per cent loss.

US Index futures suggest Wall Street’s S&P 500 will recover just 6 points of href=”” title=”US stocks sell off on Italian poll results –”>Monday’s 28-point slide</a>, its biggest fall since November, which came just a week after the benchmark hit a five-year high of 1,530.

Wall Street’s “fear gauge” – the CBOE’s Vix index – jumped 35 per cent to hit its highest level this year at 18.99, as single-day trading volumes in the contract rose to an all-time record.</p><p>Italy’s FTSE MIB stock index on Tuesday’s is sliding 4 per cent, while Rome’s implied borrowing costs have surged 30 basis points to a three-month high of 4.79 per cent as the prospect of another election looms.

Italian bond yields are off session peaks, however, and this has helped the euro stabilise. The single currency is up 0.3 per cent to $1.3106, though still close to a seven-week low, as the contagion spreads to Spain.

Madrid’s 10-year bond yields are up 13bp to 5.30 per cent. They earlier hit a two-month peak of nearly 5.6 per cent, but such levels should be put in context. Just last summer, Rome and Madrid’s yields were easily more than 150bp higher before the European Central Bank implied it stood ready as a bond market backstop.

The team at Barclays Capital has analysed potential scenarios which may unfold in the near term.

Economist Nouriel Roubini tweets:…306317428248440832

City Index tweets about FX volatility:…306346668809392128

Italy plans to sell 8.75 billion euros of 183-day bills at an auction later today.

James Fontanella Khan, the Ft;s Brussels correspondentsends an intriguing tweet:…306351116503875584

The FT’s markets desk has been looking at how Italian banks have been performing this morning.

Italian banks led a heavy sell-off across European indices on Tuesday as political deadlock in Italy rekindled a sense of crisis in the eurozone.

A number of Italian stocks failed to open on schedule, amid heavy initial selling.

After delays of up to 20 minutes for some banks to register an opening price, every single stock on Milan’s FTSE MIB was lower, with banks leading the losses.

UniCredit SpA tumbled 8.4 per cent to €0.54, while Intesa Sanpaolo SpA slid 8.2 per cent to €1.25.

Overall, Milan’s benchmark index fell as much as 5 per cent to 15,530.14. The inconclusive outcome of Italy’s election and the prospect of prolonged instability, with some local commentators calling the country an “ungovernable-pigs-mess” left traders fearing a further round of crisis.

Italian regulators were quoted by Reuters as saying they would “monitor exchanges and use all instruments to calm market volatility”, a remark some traders said could imply consideration of a short selling ban.

A spokesperson at Italian market regulator Consob said it had not decided whether to issue a ban on short selling but “we are going to do everything to control market volatility and the market is under surveillance”.

Daniele Caramani, Italian Professor of comparative politics at the University of St Gallen, Switzerland sends in some comment:

“The real winner is certainly the new Five-Star Movement led by a former comedian which adds to the unpredictability as no-one can say if and how this party will form coalitions in parliament.

The great success of the Five-Star Movement seems clearly due to a wave of protest voting similar to what happened in the first of the two 2012 elections in Greece where a left-extreme party received unprecedented support.

There is talk in Italy right now to go, as in Greece, soon for a second round of elections in a couple of months time. This is certainly not the inclination of the current President of the Republic who will push for a cabinet to be formed. But the current President is to step down in spring and how the new President will decide is impossible to predict. Overall, Italy faces a further phase of great instability which will without any doubt not help its credibility on the international bond market, among cabinets in Europe and elsewhere and among EU officials.”

Scheherazade Daneshkhu has been looking at French reaction in the FT’s Paris bureau:

France says that Italy’s “complicated” election result “creates difficulties” but, according to Pierre Moscovici, finance minister of France’s Socialist government, “does not call into question the advances made in the eurozone”. In comments to AFP news agency on Tuesday morning, Mr Moscovici added that Italy should quickly form a “stable and solid government”, around the “leading coalition” of centre-left Pier Luigi Bersani.

Our Currency Correspondent Alice Ross has done a quick snap:

The euro stabilised on Tuesday morning following heavy losses the previous night, as concerns over the outcome of the Italian election led investors to dump euro-based assets and drive up the value of the Japanese yen.

Investors reported seeing some of the heaviest market moves since the financial crisis on Monday night, with the recent popularity in shorting the yen catching many investors out as they were forced to close trades as the euro fell.

”I can’t remember bigger moves in the currency market than some of those witnessed last night in the aftermath of the Italian election, with the yen gaining more than 5 per cent against the euro,” said Paul Lambert, head of currency at Insight Investment.

The single currency was higher against the dollar in mid-morning trading in London, gaining 0.1 per cent to $1.3071 after hitting its weakest level in seven weeks on Monday evening.

Nicholas Spiro of Spiro Sovereign Strategy is commenting on this morning’s Italian bill auction. He says, not surprisingly, the sharp deterioration in sentiment towards Italy was reflected in this morning’s auction, with the yield rising sharply and demand ebbing.

Italy’s debt market is facing its most serious challenge since the announcement of the ECB’s bond-buying programme last summer. Markets have been underpricing Italian political risk for months and are now struggling to come to terms with an extremely unstable and fluid political situation.

The sharp rise in Italian and, to a lesser extent, Portuguese and Spanish spreads this morning is a reminder, if one were needed, that eurozone peripheral bond markets remain volatile and are sensitive to country-specific risk.

The result of Italy’s parliamentary election is the worst possible one as far as markets are concerned. Not only does it plunge Italy into a full-fledged political crisis, it deals a severe blow to the fiscal and structural reforms advocated by eurozone policymakers and risks undermining the perceived credibility of the ECB’s OMT programme – the main pillar of support for eurozone peripheral assets over the last several months.

From our Brussels bureau, Peter Spiegel points out that the left vs right fight in Italy has gone European as he reads comments from Austrian social democratic politician Hannes Swoboda:

“Pier Luigi Bersani and the Partito Democratico face the difficult responsibility of forming a government for Italy, to end Europe’s austerity programme”

The Italian parliamentary elections concluded with narrow margins between the parties yesterday, delivering a majority of 340 seats for the Partito Democratico in the Chamber of Deputies and a divided Senate. The Socialists and Democrats Group (the group the Partito Democratico sits with in the European Parliament), underlined the importance of stability for the country and the need to form a responsible government led by the Partito Democratico without delay.

Hannes Swoboda, President of the S&D Group in the European Parliament, said: “I welcome the Partito Democratico’s majority in the Chamber of Deputies, but we should not be under any illusions: it will be difficult to form a stable government. I now call on all senators to prove that they have Italy’s best interests at heart. The Partito Democratico will have to shoulder the difficult responsibility of trying to build stability and form a government that can carry out the necessary reforms.

“Italy’s elections follow a pattern we’ve seen all over Europe: everywhere citizens are showing their disappointment with austerity measures and their lack of hope for the future.

“The very first priority for Italy is now to form a stable coalition government to ensure a return to economic growth, employment and decent living conditions for all Italians. I am confident that the Partito Democratico and Pier Luigi Bersani will carry out the necessary reforms to end the crisis in Italy, in co-operation with the people and social representatives rather than against them.

“As Silvio Berlusconi still remains a member of the European People’s Party, it is up to the EPP to call on him to act responsibly – unlike his behaviour during the election campaign.”

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

Giovanni Orsina, deputy chairman of the Luiss School of government in Rome, says that Italy is moving on the tracks of “counter democracy, where citizens know well what they do not want, but it is hard to build a political project.”

The elections have clearly challenged a traditional system of old- guard parties, already in crisis after the so- called ” bribesville” scandals inthe early Nineties.”Since then the system has rotated around Berlusconi,” explains Mr Orsina, pointing out that Pier Luigi Bersani is perceived as the heir of the old system.

“Italians expect a lot from politics, and the greater the gap between expectations and reality, the greater the level of protest,” he explains, pointing at the anti- establishment Five Star movement as a model of “continuous consultation” that Italians have prized in these elections.

According to Mr Orsina abstention has been prevalently from Supporters of Berlusconi,who however appears as the most successful after these elections.

“Any solution ( for government) will be complicated,” says Mr Orsina, who sees a grand coalition among all parties more likely that an alliance between the Democrats and the 5 Star Movement, as ” they are not predictable because they don’t even know themselves where they are going”.

EmoticonConsob bans short selling on Intesa San Paolo

Consob has decided today, with resolution no. 18477 , to ban short selling on the Intesa San Paolo.

The ban was adopted pursuant to Article 23 of the EC Regulation on “Short Selling”, taking into account the price change recorded today by the title (above the threshold of 10%).

The measure is in force on the MTA market of the Italian Stock Exchange in the trading session today, Tuesday, February 26, 2013, starting at 12:15, and at the meeting tomorrow, Wednesday, February 27, 2013, until the end of the trading day.

The prohibition applies to short selling aided by the availability of titles. With this is extended and strengthened the prohibition of naked short selling, already in place for all equities since November 1 last year under the Community Regulation.

A spokesperson for Consob said it was watching Italian stocks closely.
“We are going to do everything to control market volatility and the market is under surveillance”

Over in Berlin, the FT’s *Quentin Peel has rounded up the reaction in the German media:

German government ministers have been very reticent in commenting on the Italian elections, conscious that Berlin was being blamed – above all by Mr Berlusconi – for Italy’s economic plight.

The first high-level reaction from Berlin came from Guido Westerwelle, foreign minister, underlining the close attention being paid in Germany to the Italian elections.

It was not only in the interest of Italy, but the whole of Europe, to ensure that a stable government capable of decision-taking was formed as soon as possible, he said.

“Italy has a central role to play in overcoming the European debt crisis,” he said, underlining Berlin’s interest in seeing Mario Monti’s policy of fiscal discipline and structural reforms continued. “In the face of the debt crisis, we are all sitting in the same boat in Europe.”

Media commentators have been less reticent. In the Munich-based Süddeutsche Zeitung, Stefan Cornelius, foreign editor, said that whereas Greece had voted for radicals in protest at austerity, in Italy they had voted for populists.

“In their own way, they are also radical,” he said. “They deny reality, and shift the blame for their misery onto enemies outside their national borders, and talk about a simple solution for all problems. After this election, Italy will not be getting any easy solution. At best it will get new elections. They won’t deliver a blessing, either.”

In the more conservative Frankfurter Allgemeine Zeitung, a front-page commentary by Günther Nonnenmacher concluded that Mario Monti was the loser of the election, and perhaps Italians had punished him precisely because his international standing was so high. Half the Italian voters had backed aggressively anti-European candidates, he said, which was an alarming sign well beyond Italy’s borders.

In a front-page commentary in Die Welt, the Berlin-based conservative broadsheet, publisher Thomas Schmid blamed Mr Berlusconi directly for “ruining Italy and pushing the country to the brink of bankruptcy, like Greece”. “It is worrying that this charlatan was not punished by the voters with disdain,” he added.

While over In Brussels, European Commission officials have also called on Italy to continue the reforms implemented over the course of the last year, saying it was important to “continue to deliver a job and growth agenda.”

“We must combat the crushing weight of debt on the Italian economy,” said Olivier Bailly, a spokesman for the European Commission. “These policies are still in application.”

The prospect of political logjam in Italy is particularly worrying to policymakers in Spain, where the government is still struggling to turn around a faltering economy and bring a soaring deficit back under control reports the FT’s Tobias Buck in Madrid.

José Manuel García-Margallo, Spain’s foreign minister, on Tuesday described the Italian election outcome as a “jump to nowhere” that would not bring “good consequences”. Speaking to journalists at the margins of a conference in >Madrid, the minister added that he was “extraordinarily worried” about how financial markets would react to the results from Rome.

Luis de Guindos, finance minister, simply expressed his hope that Italian politicians would manage to form a “stable government”.

Investor sentiment towards Spain has brightened markedly in recent months, with bond yields continuing their drift downwards and stock markets rising. Analysts had warned repeatedly, however, that an unfavourable Italian election result could dampen the mood – and cause markets to turn not just against Italy but also other peripheral Eurozone countries such as Spain.

There was fresh evidence of that dynamic on Tuesday, with the yield on Spanish 10-year bonds rising almost 2 per cent. The Ibex-35 index of leading Spanish companies was down almost 3 per cent in midday trading on Tuesday.

The gridlock in Italy is even worrying chief executives with no exposure to the market. CRH, the FTSE 100 building materials group and a bellwether which has suffered from a collapse in the construction business across Europe, said it was concerned about the impact on the wider European economy, even though it has no exposure to the italian market.

“The problems have not gone away and Italy brings them back to the fore. There is a risk that this could push companies back into their box again in relation to spending plans,” said Myles Lee, Ceo of CRH.

“The last thing business or governments need is a resurgence of the type of anxiety we saw in early 2012,” Mr Lee added.

The FT’s Giulia Segreti in Rome sends this:

The latest results have created a new system of “three political” poles, points out Francesco Clementi, professor of comparative public law at the University of Perugia.

Mr Clementi expects Italy to form a government ” pulling away from a potential greek scenario” also due to legal and technical problems, posed by the Italian Constitution, which exclude a return to the vote in a short time frame.

” The only way to form a government of Große Koalition is to put PD and PDL together. It’s impossible, in fact, to consider a government with the Democrats and the Five Star Movement, due to diverging programmes,” says Mr Clementi.

A question mark remains on who will be given the seat of Prime Minister- “neither Bersani nor Berlusconi… but a sort of a technical figure,” he adds.

European Commission spoksman Olivier Bailly says Mario Monti’s tenure:
included “ambitious reforms indispensable to the Italian economy.”

Sovereign Debt Analyst at Fidelity Worldwide Investment Tristan Cooper notes that Italy’s protest vote against the Eurocrats has “wrenched” market attention away from the hunt for yield and back onto political risk.

The social disaffection caused by youth unemployment has been strikingly reflected by the surge of the Five Star movement. This can only embolden anti-establishment and euro-sceptic parties in other countries with high and rising unemployment. Such groups have already proven themselves at the ballot box in Greece.

Italian economic fundamentals are fragile and the recession still deep. At best, the political impasse in Italy will push back the market’s expectation of a recovery there. At worst, the contraction could deepen as consumer and business confidence cowers under an extended period of political uncertainty.

European policy makers will be very concerned to avert a potential market meltdown given that Italy is too big to save. The ECB is the only institution really capable of putting out fires. An ECB rate cut next week now looks likely and Draghi will stress that the OMT bond-buying program is there to assist if needed. Yet the OMT is an untested tool that can only be expected to kick in at high levels of market stress. It also requires conditionality, which will be difficult to negotiate with a rudderless Italian state.

The political will to preserve Eurozone stability has been proven in Greece. A new government in Italy, when it is eventually formed, is more likely to be unstable and ineffective than unorthodox and radical. Fiscal discipline is likely to be broadly preserved even if serious structural reforms are now off the agenda. Hence, the negative market reaction to events in Italy may provide an opportunity to buy into the periphery, albeit at significantly higher yields. It will be important to keep an eye on the rating agencies, who could well jangle nerves with another downgrade if policy uncertainty in Italy persists.”

How will the gold price be affected?…306372302273126400

Here’s how Italian equities are doing:

Co-founder of @tweetminster Alberto Nardelli tweets:…306379558960107520

SunGard’s head of European securities lending, David Lewis, who has studied the impact of previous European short selling bans, comments on news that the Italian stock market regulator could impose a ban on short-selling to calm market volatility.

“Short selling does not increase volatility in markets and banning it can actually increase it.

“Bans on short selling are often politically driven and usually a sign of underlying economic problems. Many studies have shown that such bans do little to support share prices whilst damaging liquidity and widening spreads which are both bad news for investors. Short selling allows proper price discovery and is part and parcel of an efficient capital market.

“They say in war that the wrong action is usually better than inaction. Perhaps this is the case here. The argument that things would be worse without a short selling ban in place has been levied – but it is nearly impossible to isolate such individual effects on a market under pressure.

“Many European countries have previously imposed bans on short selling. Our own study of the short selling bans in Spain (which were finally lifted at the end of January) showed there was no real change in the volatility of the market for the duration of the ban. It also showed little correlation between the direction of share price movement and the subsequent imposition of a ban.

“At the very least, legislators should hold in their mind the cautionary tale that shorting stocks is not as clear-cut negative as they think. One should always be careful of allowing political necessity to dictate an economic folly. Christopher Cox, the Chairman of the SEC during the Lehman Brothers default was quoted as saying “knowing what we know now, I believe on balance the commission would not do it again.” Other jurisdictions would do well to listen to his experience.”

The market turmoil was clearly illustrated in currency trading. The Yen reversed early losses to surge against the Euro as traders ran to havens.

Matt Dabrowski and the team at Citigroup have looked at the economic Implications of the elections so far. Here’s their take:

The high political uncertainty that is likely to persist in the coming period will likely have a negative impact on real and financial investment decisions in Italy.

The over-performance by Grillo and under-performance by Monti are clear signals, in our view, of the anti-austerity message conveyed by voters, which will make further fiscal consolidation efforts very difficult to implement.

The absence of cohesive political leadership may also make Eurozone crisis management more complicated.

All this is likely to cause wider and more volatile government bond spreads in the coming weeks/months. Moreover, pressure on Rome is likely to result in some form of external financial assistance, but unsettled politics may significantly delay any agreement in this respect.

This is how Italian bonds have performed:

This from Peter Spiegel, the FT’s Brussels bureau chief:

Olli Rehn, the EU’s economic commissioner in Copenhagen for meetings, told reporters that while the Italian elections had left a “complex” picture, he had confidence that Italian leaders — especially President Giorgio Napolitano, who played an instrumental role in easing Berlusconi out of office last year — would “swiftly chart a way forward”.

“It is of course important that Italy pursues reform for the sake of sustainable growth and job creation,” Mr Rehn said. “The [European] Commission will continue to work in close partnership with Italy to support it in facing these challenges.”

Analysts at Brown Brothers Harriman have warned against jumping to the conclusion that the results are necessarily a judgement on the single currency:

“Some will see the majority vote for the parties that want to leave [European monetary union] as the beginning of the end, sparking a new phase of the financial crisis. Austerity has so weakened the social fabric that it has eroded the political center. A political crisis is more immune to ECB action and the OMT than a private capital strike.

However, it may be jumping hastily to a conclusion that all who voted for the center-right and Grillo did so to express a desire to leave EMU. There were many reasons why the voters would want to express disapproval of the technocrat government that promised better days but failed to deliver growth or jobs.”

Emoticon A message from Alessandra Moretti, the spokesperson for the Bersani campaign:

According to the FT’s Ferdinando Giugliano, she is saying no to a grand coalition.

Michael Steen in the FT’s Frankfurt bureau has just sent a post about what this means for the ECB:

The political deadlock resulting from the Italian election could almost have been custom crafted to test a weakness in the backstop put in place by the European Central Bank last September to dispel financial market fears of a Eurozone break up.

Since Mario Draghi, the ECB’s Italian president pledged to “do whatever it takes” within the bank’s mandate to save the euro, the Outright Monetary Transactions programme, as the backstop is known, has reassured investors that the bank stands ready to use its unlimited firepower to buy as many sovereign bonds as it takes to overwhelm bets on a break-up.

But OMT comes with strings attached – before the ECB buys a single bond of a country in trouble, its government must first apply for, and submit itself to, a programme designed by one of the EU’s rescue funds “which envisages strict and effective conditionality spanning the fiscal, macroeconomic, structural and financial spheres,” as Benoît Cœuré, ECB executive board member, put it in a speech last September.

While Italy, the eurozone’s third largest economy, is still far from needing to apply for either OMT or a full-blown bailout, those are exactly the kinds of conditions its voters so clearly rejected in the election and that a weak, probably anti-austerity government would not want to enforce.

Yet Tuesday’s resurgent eurozone market jitters showed this may be a riddle that will need to be solved.

“If you take the view that because of Italy’s size it might be willing to test the ECB’s resolve to implement meaningful reforms and, for whatever reason, the ECB declines to get involved, there’s a risk that that [OMT] backstop doesn’t work in the way people hoped,” said Ben May, economist at Capital Economics.

Although Italy is running a primary surplus and interest rates are low, an ageing population and the prospect at best of “snail’s pace” gross domestic product growth, meant it could yet struggle to lower its absolute level of indebtedness, equivalent to about 126 per cent of GDP.

“We’ve long said we feel there’s a risk that Italy will require some sort of help from the rest of the eurozone… but the timing of that is clearly uncertain,” Mr May said.

For its part the ECB has been so explicit about the need for the fiscal conditions attached to OMT that it would be hard to see how it might justify deploying the bond-buying programme without securing a pledge of fiscal rigour from an Italian government.

Moreover, the fiscal conditions baked into OMT were designed after the ECB’s painful first experience of buying sovereign bonds under its so-called Securities Markets Programme.

Marina Sereni, PD vice-president, says Bersani will rule out alliance with Berlusconi and make a “proposal for change” to Grillo.

More from Alessandra Moretti, spokesperson for the Bersani campaign:

“we will question M5S on new electoral law, reduction in no of MPs, costs of politics and anti-corruption law. Will M5S take responsibility?


Italian Fiscal Forecasts courtesy of JP Morgan, the Italian government and the IMF.

International think tank Open Europe has had a go at how seats may be distributed. (with a refresher on how the electoral system works)

And here is what Open Europe sees as broadly the timeline:

15 March: First seating of the Italian parliament (both chambers).

By 20 March: The speakers of both chambers should have been elected.

After 20 March: Italian President Giorgio Napolitano starts official consultations on the formation of the new government. The President usually talks to the leaders of the political groups in the Italian parliament and the speakers of the two chambers. Before that, though, political parties will talk to each other so we may already get a clearer idea (or not) of possible alliances. Bersani is likely to be the first asked to form the new government, as his coalition holds a majority in the lower house.

15 April: Procedures for the election of the new Italian President are due to start (unless he decides to step down earlier, see below).

15 May: Mandate of Italian President expires.

Interesting piece of analysis by Carlo Bastasin of the Brookings on how Italy is expected to keep order in public finance and rekindle growth at the same time.

This just in from Giulia Segreti in the FT’s Rome office who has been listening to Beppe Grillo:

In what appeared to be an improvised press conference outside his home in Genoa, Beppe Grillo, leader of the Five Star Movement seemed still overwhelmed and wasn’t ready to answer the many questions of the reporters assaulting him with microphones and cameras with doubts over the future of the Italian government.

Unlike his screaming rally-shows in the squares, Mr Grillo was serene and very calm. Quoting his communications guru, Gianroberto Casaleggio, he ironically said that “it’s a day like any other”. Certainly reassured by the movement’s spectacular performance at the ballot, he didn’t however unravel the many problems concerning the country’s stability.

According to Mr Grillo – who is not the candidate prime minister nor an MP for the movement, but simply defined himself as a “guarantor” – the movement would be available to convene with other parties in parliament if their proposals “fall into our programme”. He excluded any sort of alliance but accepted the idea of time-by-time common efforts with parties sharing same ideas on policy-making.

Mr Grillo did not, however, say if he the creation of a grand alliance in parliament or returning to the ballot. He did say that he would represent the movement when called to consultations with the head of State, “also for my own personal satisfaction”.

He described the moment as “historical”, telling reporters that they should “perceive the miracle” of the results of the national election and that the movement had created “hope for Italians, who now feel part of a project”

“(The movement) is not against the world, but against a certain way of thinking,” Mr Grillo explained, referring to the opposition to old-guard parties and their manner of approaching politics without consulting voters.

“People have turned their back to politicians, who are out of touch . We aren’t all about protest, but about ideas,” he added.

He advised Mr Berlusconi to “go see a doctor to talk about his mental health” and accused him of buying votes in the elections.

For one of our readers “eib”, here is a picture of Grillo:

A reminder of Italy’s debt pile – which is the world’s third largest at $2.16 trillion and 126 percent of gross domestic product, with Euros273 billion euros due for repayment this year.

La Dolce Viagra: As Italy’s elections determine Silvio Berlusconi’s fate, Vanity fair takes a look back at his “bunga bunga” social life.

Read the FT’s Valentina Romei on how Monti may have tanked in Italy, but he did better among Italians living abroad.

The preliminary election results among the nearly 3.5 million Italian voters living abroad show a very different picture from the results within Italy:

Bersani is speaking now and says he doesn’t want to discuss possible alliances now. “We will propose some basic ideas to parliament.”…306436886015135745

Bersani speaks at a press conference in Rome

Bersani says he will not abandon ship and quit party leadership.

Bersani is blaming the following for the stalemate (in no particular order):

Emoticon Austerity

Emoticon The Italian voting system

Emoticon Europe

Bersani says he is open to M5S holding presidency of lower house…306442157651271681

Want to know how Beppe Grillo’s feeling? Needless to say he’s a bit overwhelmed by the results.

“I’m here on the settee at home. They’ve made me lie down. They don’t want me to have any upsets. They’ve covered me up with one of those checkered rugs. Outside there are the floodlights beaming in through the bathroom window. I don’t know what they want to see. This adventure that we’re having is fantastic.”

Read more on the official Beppe Grillo blog…

The Reuters columnist John Lloyd points out that between a quarter and a third of Italians were prepared to vote for Grillo.

“They did so because they believed him and his disgust over a long political betrayal. Italian politicians at every level are not universally venal, but enough of them are. They produce sufficiently frequent scandals of an outrageous kind for the honest, taxpaying citizen to feel regular nausea. It is on the tide of that nausea that Grillo rode, which made his movement the biggest single “party” – the center-left and center-right blocs, which narrowly beat him, were coalitions – and which handed him a large power to do something.”

He adds:

“It’s worth stressing the extraordinary nature of the Italian result. Two impossibilists have taken most of the vote; the man most approved by the rest of Europe, the United States and the world institutions has been humiliated.”

Bersani says his party must react with humility to the outcome of the election.

“We did not win, even though we came first.

Our first responsibility to the country is to represent change, more so than in the election campaign.”

Leader of Dutch Prime Minister Mark Rutte’s VVD party in the European Parliament has summed up the elections with this pithy quote:

“Italians must elect who they want to elect and must bear the consequences when they elect clowns.”

Fresh from the Bersani press conference, the FT’s Giulia Segreti sends this report:

In his first appearance since voting on Sunday, Pier Luigi Bersani, leader of the Democrats, said that his coalition would not search alliances with other parties in parliament but would propose a short agenda of reforms and seek parliamentary support on the basis of it.

“The first word is ours. We are facing a new situation and we take our responsibilities, and will be carriers of an efficient proposal of change,” said Mr Bersani, adding that the party intends to “reverse the scheme of things” and will remain the “Reference point of the country”.

According to Mr Bersani parties will make their proposals to the head of state, “whose advice we will listen”.

“He will be the one who will say which initiative will be able of running a government” he added.

He did not want to define the type of government that parties would start in the next weeks, but said that it has to be “of combat, with strong change and few clear points on which to work on”

Among his priorities, constitutional reforms, changes to party rules, “morality and defence of the classes that are most exposed to the crisis” and new legislation for the labour market.

All parties in the two chambers “had their own personal responsibilities” and called on his fellow MPs to make their policies and solutions clear.

“For us, it is a matter of accepting with simplicity and humbleness what comes out of this result and reconfirm our willingness to be useful to our country,” he added, explaining that the his party is “not a problem” for the country.

“It is clear that a party that cannot grant a government to its country cannot say to have won elections. We have not won although we have reached first place,” said a very tense and disappointed Mr Bersani.

Lacking any sort of self-criticism in the errors made in the campaign, Mr Bersani did not answer a question on the mistake to underplay the role of Matteo Renzi, his adversay in the primaries, but blamed the grid-lock in parliament on the lack of reform on the electoral law.

He assessed that at the last vote showed a “refutation of politics as it presented itseld in the last months, with inefficient institutions and a morally not credibile politics”

Mr Bersani confirmed that the democrats had expected
“these dynamics and a complex and profound detachment” and had tried to respond with new mechanisms in the party, such as recurring to party primaries, but “the problem has surpassed our remedies”

The FT’s Quentin Peel in Berlin notes the reaction of Jean Asselborn, Luxembourg’s foreign minister, who was pessimistic about the result.

He called the threatened political deadlock in Italy “a disaster for the euro and the European Union”.

He told the Berlin newspaper Tagesspiegel that the success of Silvio Berlusconi, the former prime minister, and Beppe Grillo, the comedian, made him doubt “that Italy will be able to find a way out of the crisis.”

As European markets close, Alexandra Stevenson on the FT’s market desk takes a look at what has been a chaotic day:

European markets finished what one analyst called a “bloodbath” session in crimson, with nearly every European market having wiped all gains made so far this year.

Italy’s Intesa Sanpaolo slid by more than per cent before the market regulator Consob issued a two-session short selling ban on its shares. The shares closed down 9.1 per cent to €1.23.

UniCredit, Italy’s largest lender, tumbled 8.5 per cent to €3.83. Overall, Milan’s benchmark index closed down 4.9 per cent at 15,552.20.

The inconclusive outcome of Italy’s election and the prospect of prolonged instability left traders fearing a further round of crisis.

Indices on the periphery of the eurozone made similarly steep losses. Spain’s Ibex 35 was 3.2 per cent weaker at 7,980.7. In Portugal, the PS1 20 lost 2.5 per cent to 6,010.07. In both Madrid and Lisbon, banks led the losses.

The Xetra Dax slumped 2.3 per cent to 7,597.11. France’s CAC 40 slid 2.7 per cent to 3,621.92, with French financials among some of the most exposed to Italy. Crédit Agricole slipped 5.9 per cent to €7.04 and Société Générale fell 5.5 per cent to €28.20.

Overall, the region-wide FTSE Eurofirst 300 lost 1.4 per cent to 1,150.25.

Volatility spiked to a five-month high. Europe’s so-called “fear gauge”, the VStoxx, reached 24.5 – its highest level since September last year.

“Who said contagion risk was dead?” said Mike van Dulken, head of research at Accendo Markets.

Michael Hewson, senior markets analyst at CMC Markets, said: “It looks like a bloodbath. I hesitate to say that we are going to go down another 5 per cent [across European markets] but I think we need to. We’ve got Bernanke speaking today and he could prompt a lift.” He added: “We could see the start of a major correction.”

The FT’s Live blog is signing off now and as Italy’s shell-shocked political parties try to find a way forward over the next few weeks, we leave you
with the wise words of Spain’s foreign minister Jose Manuel Garcia-Margallo:

“This is a jump to nowhere that does not bode well either for Italy or Europe.”