Italy mulls next step

Italian leftist leader Pier Luigi Bersani refused to comment on Tuesday on which party he may approach to end the stalemate. Final results showed his alliance won control of the lower house of parliament with 29.54 percent of the vote, but was 35 seats short of a majority in the Senate.

Commenting on the result Bersani admitted he had "come first, but not won" the crucial election.

"We are aware that we are in a dramatic situation, we are aware of the risks that Italy faces," Bersani said in his first post-election conference. He added that he would lead attempts to form a new government by first drafting a reform agenda and then seeing which political grouping was prepared to accept it.

Bersani has the option of turning to either former Prime Minister Silvio Berlusconi's conservative group or comedian Beppe Grillo's protest Five Star Movement (M5S) to end the stalemate.

Berlusconi surpassed expectations by coming a close second in the vote for the lower house, winning 29.18 percent. M5S are also possible kingmakers, however, after coming from obscurity to win 25 percent in the lower house, most likely picking up votes from a populace tired of austerity.

Grillo said on Wednesday that M5S would support individual measures in parliament but would not give a confidence vote to any government led by traditional parties.

The big loser of the election was outgoing Prime Minister Mario Monti, whose pro-austerity centrist group came in fourth place with just 10.56 percent of the vote for the lower house.

Italy stalemate alarms Europe

Many saw Italy's election as crucial for the eurozone and Tuesday's stalemate has raised fears that political instability will damage an already fragile economy.

Indeed markets appeared rattled, with both Italian stocks and government bonds falling - shares on the main stock market index closed almost 5 percent down at the end of Tuesday trading. Meanwhile, the interest rate that the Italian government must pay for 10-year loans widened in comparison with Germany.

During a state visit to Germany Italy's President Giorgio Napolitano sought to calm fears of political paralysis, saying he was "very cheerful." But within Germany, politicians had a different response.

German Finance Mnister Wolfgang Schäuble said he was "not exactly pleased" with the results, adding that he hoped for the quick formation of a "stable government."

Foreign Minister Guido Westerwelle expressed a similar sentiment, saying it was vital for the EU as a whole that a government be formed quickly.

"What is now decisive for Italy - but, also because Italy is such an important country for Europe, also for the whole of Europe - is that a stable government that is capable of acting can be formed as quickly as possible," Westerwelle said.

A jibe about "two clowns" in Italy's election prompted Napolitano to cancel a dinner he had been due to share on Wednesday with Peer Steinbrück, the German opposition Social Democrats' candidate who hopes to unseat conservative Chancellor Angela Merkel in Germany's federal election in September.

A spokesman for Steinbrueck said Napolitano had called off the encounter. Late on Tuesday, Steinbrueck had told a Social Democrat (SPD) rally that he was "appalled that two clowns have won" and he made clear he was referring to Berlusconi and Grillo.

"My impression is that two populists have won," Steinbrück said.

Meanwhile, Spanish Foreign Minister Jose Manuel Garcia-Margallo said the Italian results were "a jump to nowhere which does not herald good consequences for anyone, not for Italy nor for the rest of Europe."

Italy must 'adhere to reforms'

Looking beyond the formation of a new government, concerns are also rife that certain political groupings may turn their back on recent austerity measures and labor and pension reforms, undermining confidence in the eurozone as a whole.

European Commission spokesman Olivier Bailly said that, while Europe's executive body took note of the concerns of the Italian people, it also expected Rome to adhere to promises of reforms.

"We clearly hear the message of concern expressed by Italian citizens," Bailly told journalists.

"We are not worried," he added. "We would like to underline our full confidence to the Italian authorities, to their capacity to find and establish a political majority that will continue to deliver a growth and jobs agenda."

• ccp/jm (AFP, Reuters, dpa)