Italian vote inconclusive, new elections looming

The Italian general election has turned into a neck-and-neck race between right and left after projections contradicted early exit polls showing the centre-left heading for victory in both the lower and upper house.

The first results based on the actual vote count showed Silvio Berlusconi's centre-right alliance ahead of Pier Luigi Bersani's centre-left in the Senate in terms of seats.

In the Chamber of Deputies, the centre-left looks set for a comfortable victory, with around 32% of the vote, compared to Berlusconi's 26.5% and comedian Beppe Grillo's impressive 25.5%.

Early results show that the centre-left is heading for victory in terms of votes in both Houses, but it is unclear whether Bersani's coalition with Nichi Vendola's Left, Ecology and Liberty (SEL) will end up with the outright majority in both houses of parliament it will need to govern the country.

While winning the lower house would put Bersani in pole position to form a government, he cannot rule effectively without control of the Senate.

The Italian electoral system makes it almost impossible to predict the outcome of the general election because while members of the Chamber of Deputies are elected according to national results, members of the Senate are elected region by region.

Although Bersani could turn to outgoing Prime Minister Mario Monti's centrists to form a majority in the Senate, this scenario looks unlikely since Berlusconi and his Northern League allies seem to have secured a majority in Italy's key regions, giving the centre-right control of the Senate.

An inconclusive result could either produce a grand coalition, which seems implausible, or new elections called.

Unless Berlusconi manages to pull off a surprise win in both chambers, this means that Bersani may be forced to reach out to Berlusconi's coalition to form a grand coalition. However, what was a relative success for the German left and right in 2005, is highly improbable to repeat itself in heavily polorised Italy.

Another option would be a Bersani-Grillo alliance in the Senate, however the comedian and leader of the Five Star Movement had already made it clear that he would not ally himself with any party.Yet, the movement's loose collection of deputies and Senators could decide to defy their leader who is not a candidate himself and back the centre-left coalition. 

This would leave President Giorgio Napolitano no other option but to call new elections or appoint a caretaker Prime Minister to carry out urgent reforms such as changing the electoral law before going to another vote.

Enrico Letta, the deputy leader of Bersani's Democratic party, said, after hearing the first projections: "If things turn out this way, the next parliament will be ungovernable. A new electoral law will be passed straight away and we'll go back to the polls."

The election result will be watched closely in Europe and beyond. Italy, the eighth largest economy in the world, is in deep recession, with unemployment at a record high, especially among the young.

The prospect of further political instability after this year's election would be damaging. If a political deadlock emerges and voters are seen to have rejected austerity and reforms, the markets could be spooked and Europe's debt crisis could, with Italy taking centre stage.

As initial exit polls emerged, shares on the Milan stock market soared by as much as 4% when investors expected a Bersani win, however when the first projections showed that the race was too close to call, the markets dipped into negative territory.

The electoral system

The Chamber of Deputies, the lower house, has 630 elected members, while the Senate has 315 elected members plus, currently, four appointed life senators.

The electoral system is based on proportional representation and party lists, with a series of thresholds to encourage parties to form coalitions.

The government must have the consent of both houses in order to govern, and unlike other European upper houses, the Italian Senate almost enjoys the same power as the lower chamber. All laws, other than the budget, can be initiated in either house, and must be approved in the same form by both houses.

In the Chamber of Deputies, the electoral system guarantees at least 340 (54%) of the 630 seats to the party or coalition which wins a relative majority.

However, in the Senate, the winning majority is decided region by region. The winning coalition in each of the 20 individual regions is granted 55% of the region's seats.

Italy's electoral law, nicknamed the "porcellum", is both cumbersome and controversial and although there is widespread consensus that the system needs to be overhauled, a few parties, mostly centre-right, were unwilling to change it.

The campaign

Opinion polls prior to the election made Bersani's coalition a consistent frontrunner polling up to 10% ahead its rivals.

However, with polls banned from being made public in the last two weeks before polling day, Berlusconi's campaign picked up pace as the campaign came to an end.

Comeback kid Silvio Berlusconi managed to bring that lead down to 5% following a tour de force, in which he made daily television and radio appearances on public owned stations and his own media empire.

Berlusconi has stated that he would serve as finance minister, rather than prime minister, if his party ends up leading the government, probably keeping an eye on the President's office which will be vacated later this year.

This would mean that PdL secretary Angelino Alfano would be Premier in such an unlikely scenario.

During the campaign, Berlusconi attacked Mario Monti's austerity measures and promised sweeping tax cuts if returned to power, despite promising to back the technocrat government together with the centre-left and centrist parties.

After being forced to stand down as Prime Minister at the end of 2011 by a combination of scathing personal scandals and a spiralling economic crisis, Berlusconi's party supported Monti's government until December, approving nearly all the technocrats' austerity measures.

Yet, late last year, Berlusconi pulled the plug on the government and claimed that, instead of reviving the Italian economy, tax rises and other measures introduced by Monti had resulted in further unemployment and a reduction in consumption.

The media mogul and AC Milan owner pledged that he would scrap and refund Italy's unpopular property tax in his first Cabinet meeting if his coalition is elected. The tax was re-imposed by Monti's government in a bid to boost public coffers.

He said he would make up for lost with other measures including a reduction of state funding to political parties and a tax, to be agreed with Switzerland, on financial activities by Italian citizens in the neighbouring country.

On the other hand, the sombre Bersani portrayed himself as an honest man, ready to form a government that Italians could trust, without promising heaven on earth.

If elected to power, Bersani pledged to cut taxes for low and middle earners and fund this by raising taxes on the rich and by cracking down on tax evasion.

While his coalition partner Vendola has been critical of Monti's austerity and labour reforms, Bersani said that if elected he would continue with the reforms and the budget discipline implemented by Monti, but in contrast with Monti he would lobby with the EU for more relaxed fiscal rules on investments to boost growth and job creation.

Riding a wave of popular protest and discontent Beppe Grillo's Five Star Movement, who ruled out making alliances with other parties, set out an anti-austerity agenda including a referendum on the euro, the abolition of public funding to political parties, laws to address corruption and conflict of interest.