Markets plummet after Italy rejects austerity with vote for comedian causing deadlock which threatens European economy

• Euro tumbles over prospect of coalition haggling and new elections
• FTSE 100 closed 1.3% down as Italian stock market fell almost 5%
• More than a quarter of voters backed the renegade Five Star Movement
• Pier Luigi Bersani's left-wing alliance has most seats but no majority
• Disgraced former PM Silvio Berlusconi comes in second

Panic spread through European stock markets yesterday as political paralysis in Italy sent shares tumbling.
The FTSE 100 index fell 84.93 points to 6270.44, wiping £21.5billion off the value of Britain’s blue chip firms. The losses were worse on the Continent with the stock market down 4.9 per cent in Milan, 3.2 per cent in Madrid, 2.7 per cent in Paris and 2.3 per cent in Frankfurt. Bank shares were the biggest fallers. Barclays and RBS lost more than 4 per cent.
The cost of borrowing surged in Italy and the cost of insuring the country’s debt against default climbed to its highest this year.

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Choice: The split between the centre right forces of Silvio Berlusconi (left) and the centre left forces of Pier Luigi Bersani (right) raised the real prospect of a fresh election

The markets plunged across the world after the Italian election resulted in deadlock thanks to one of the largest protest votes in living memory.
The result in Italy is expected to slow the country's recent economic gains, and threatens to tip the entire eurozone back into full-blown crisis mode.
In a rejection of the austerity reforms needed to ease the country’s massive debt, more than a quarter of voters backed the Five Star Movement, led by comedian Beppe Grillo.
Meanwhile, the disgraced former prime minister Silvio Berlusconi unexpectedly exploded back on the scene with 29.2 per cent of the vote.

German tabloid newspaper Bild expressed its horror at the election result and renewed instability in the financial markets with the headline, 'Are they going to destroy our euro now?'
Mr Grillo's anti-euro and anti-austerity party, which took 25.6 per cent of the votes, was the most popular single party in Italy.
The Five Star Movement drew support away from both major parties, leading to the prospect of months of deadlock as politicans attempt to form a new government.
The centre-left groups, led by Pier Luigi Bersani, had 29.5 per cent of the vote in the lower house, only just ahead of Mr Berlusconi's centre-right alliance.
Mr Grillo took to the internet to taunt the country's mainstream politicians over their disappointing performance.
'We've started a war of generations,' he said in a statement posted on his website. 'They are all losers, they've been there for 25 to 30 years and they've led this country to catastrophe.'
The charismatic anti-politician, who was once convicted of manslaughter, has vowed not to join a coalition with any other party, meaning politicians face deadlock in their attempts to form a government.

Looking positive: Five Star Movement leader and comedian Beppe Grillo and his wife Parvin Tadjik

 

'The winner is: Ingovernability' was the headline in Il Messaggero, while commentator Massimo Giannini wrote in La Repubblica: 'The "non-party" has become the largest party in the country.'
Despite Mr Grillo's success, a coalition between the centre-left and centre-right could be the most likely outcome after Mr Berlusconi this morning suggested he would consider teaming up with Mr Bersani, saying that both parties 'must be prepared to make sacrifices' and rejecting the possibility of fresh elections.
The centre-left was left in a state of shock by the results after failing to achieve the resounding win it had been expecting.
Enrico Letta, a senior member of Mr Bersani's party, insisted that his grouping should be first in line to try and form a government, while the leader said: 'We will handle the responsibilities that these elections have given us in Italy’s interest.'
Turnout was unusually low at 75 per cent - historically, it has usually been above 80 per cent, though this is the first national election held during winter.

Plunge: Japanese markets were the first to fall today, sparking a global sell-off of shares after the election

Mr Bersani is guaranteed a majority in the lower house, the Chamber of Deputies, due to election rules giving the largest alliance more than 50 per cent of the seats.
But the situation in the Senate is much more confused - Mr Berlusconi's group is likely to be the largest with 116 seats, with Mr Bersani close behind on 113, but no party is close to a majority.

The party headed by current prime minister Mario Monti, who has emphasised the need for radical economic reforms and continued austerity, performed disappointingly, attracting just 10.6 per cent of votes.
Mr Monti took over the government in November 2011, with the support of both major parties, and pulled Italy back from the brink of an EU bailout by restoring investor confidence and lowering the interest rate on the country's bonds, which was unsustainably high.

This split raised the prospect of a fresh election – and further delay to much-needed economic reforms in the single currency’s third largest economy.

Competition: Mario Monti casting his vote- Mr Monti's party is expected to gain fourth place

Mr Bersani, who was widely considered the favourite, has a reformist track record and has worked closely with Mr Monti, leading to hopes that he would continue along the same path.
However, the election results mean that if he is to have any hope of power he will depend on either Mr Grillo or the mercurial Mr Berlusconi, who are likely to reject the austerity demanded by the German government and other international lenders.
If investors begin to doubt that Italy will enact reforms to keep its economy on track, the damage will quickly spread to other European countries, amidst fears that Italy is too large for an EU bailout.
Leading centrists in the country lamented the results - Gianfranco Fini, a former foreign minister who lost his parliamentary seat in the election, said: 'The worst is yet to come for Italy.'
Paul Mortimer Lee, global head of market economics at BNP Paribas, said today that the election result was likely to shave up to one per cent from Italy's growth rate this year.
‘There’s no alternative to the austerity that the EU wants,' he told BBC Radio 4's Today programme. 'But the politicians are not going to offer that up on a plate because it’s a recipe for rejection.
‘The Italian people are saying we don’t want to do the hard yards. The news will have to get worse and a lot worse before it gets better.’

Decisions: People read electoral information banners in a polling station in Rome during Italy's general elections

As soon as results started to be declared last night, the euro began falling, reaching a seven-week low against the dollar by this morning.
The single currency has rallied strongly in recent weeks as fears of an imminent break-up of the eurozone eased.
But analysts said a change of government in Italy – and the possible return of Mr Berlusconi – could see the austerity measures implemented by outgoing leader Mr Monti reversed and plunge the economy deeper into crisis.
The Five Star Movement has come from nowhere in three years to secure the vote of one in four Italians.
Its 64-year-old leader, Mr Grillo, attracted hundreds of thousands of supporters as he toured town squares in a camper van. Much of his support comes from young Italians, who are frustrated by never-ending corruption scandals and mobilised by social media.

Shock: Opinion polls had underestimated the appeal of the Five Star Movement in the run-up to the election

Fragmented: Seats in the Senate are allocated on the basis of the country's regions

Earlier exit polls had shown the centre-left coalition ahead in both houses. But initial optimism from market investors soon evaporated once later projections pointed to a lead for Mr Berlusconi’s centre-right coalition.
The former premier, who resigned 15 months ago after bringing Italy to the brink of economic ruin, has made an astonishing comeback.
His trial, on charges of paying for sex with an underage girl, has been postponed until after the election. Mr Bersani, a former communist, would have to win both houses to form a stable government. He has said he would continue with reforms begun by technocrat Mr Monti.
The country is likely to endure political horse-trading over the next few days to try to appoint a government.
If no party can form a majority, another caretaker technocratic government may have to take power until fresh elections can be held in May.
Robert O’Daly, of the Economist Intelligence Unit, said: ‘Under a scenario where the combined parliamentary representation of Mr Bersani’s centre-left and Mr Monti’s centrists is insufficient to form a majority, a period of minority government followed by further elections would be likely.
‘Such an outcome would place strong additional upward pressure on government borrowing costs. If this were to continue for a prolonged period, it could be destabilising for other distressed peripheral euro area countries.’

VIDEO  Comedian who got 25 per cent of vote calls politicians 'schemers' 

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