Political uncertainty in Italy slammed markets hard Tuesday with investors fearful that Europe's debt crisis may be about to rear its head again.
"The winner is: Ingover-nability," was the headline in the Rome newspaper Il Messaggero, echoing the sentiment of a shock
The centre-left coalition led by Pier Luigi Bersani won the lower house by around 125,000 votes and claimed the most seats in the Senate but was short of the majority in the upper house that it would need to govern. Bersani claimed victory but said it was obvious that Italy was in "a very delicate situation."
Neither Beppe Grillo, a comedian-turned-politician who previously ruled out any alliance with another party, nor Silvio Berlusconi's centre-right bloc, which threatened to challenge the close tally, showed any immediate willingness to negotiate.
In Europe, Italy's FTSE MIB index was the worst-performing index. Other stock indexes in Europe were trading sharply lower too. Germany's DAX was down 1.9% down at 7,624 while the CAC-40 in France fell 2.3% to 3,634. The FTSE 100 index of leading British shares was 1.3% lower at 6,271.
The euro was also hit hard late Monday on the initial fallout of the election results, nearly falling to below $1.30 for the first time since early 2013. However, it recovered its poise Tuesday, trading 0.1% higher at $1.3087.
Italy is hugely important for the future of the euro and its apparent stability over the past six months has been one of the reasons why concerns over the currency have eased. Of the 17 European Union countries that use the euro, it has the second-highest debt burden as a proportion of its annual gross domestic product at 127%. Only Greece's is higher. Italy has to spend around 80 euros billion just to service its debt each year.
The Mario Monti government had enacted wide-ranging reforms - to the widespread relief of markets - but he was a big loser in the election. Hence the worry across Europe is that the appetite for reform may wane and Italy's parlous debt situation may deteriorate.
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