ITALIAN voters left the Eurozone’s third biggest economy a gridlocked political mess yesterday, with a hung parliament clobbering the euro, spooking stock markets, and sending measures of volatility soaring.
Pier Luigi Bersani’s centre-left bloc managed to win a majority in the lower house by dint of the electoral system’s generous winner’s bonus.
But projections late last night suggested it would be Silvio Berlusconi’s centre-right alliance that took the top spot in the senate – though there is no rule that guarantees the winning coalition an overall majority in the upper house.
And the emergence of comedian Beppe Grillo’s Five Star Movement as a major political force puts a further spanner in the works, as Grillo has promised never to work with other parties in a coalition.
Grillo’s party – for which he is not a candidate, due to a 1981 manslaughter conviction – is set to become the biggest individual party in the lower house and the second biggest in the upper house. The populist maverick is anathema to markets, having campaigned on a platform that includes suspending interest payments on Italy’s debts, slashing the work week to 20 hours, and gifting all Italian citizens with free internet.
Along with Berlusconi’s plans to do away with key structural reforms and austerity measures put in place by former leader Mario Monti – whose centrist bloc came fourth in exit polls, with only around ten per cent of the votes – markets registered worries about the outcome of the election.
The US’s Vix volatility index soared 34 per cent, its sharpest move for 18 months, when the stalemate election outcome became obvious.
The euro, reaching highs of around $1.3307 on hopes Bersani would pull off a win, crashed to $1.3057. Against the yen, the move was even starker, climbing to highs of ¥ 125.06 before sliding to ¥ 119.18.
Part of the weakening versus the yen reflected a general strengthening of Japan’s currency, as investors dialled back on some of the steep losses it has seen so far over the year. As well as its three per cent gain against the euro, it rocketed two per cent versus the dollar, and gained almost three per cent compared to sterling.
Ten-year bond yields surged one per cent on the day, further widening the spread on comparable German bonds to 293 basis points, from 288 basis points on Friday.
The FTSE Mib – the main Italian stock market index – finished up 0.73 per cent at 16,351.99, despite a collapse from highs of 16,884.14 to 16,130 when hopes of a centre-left majority in both houses began to be dashed by emerging poll results.