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What is the outlook for Italy after the election?

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What is the outlook for Italy after the election?

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The vote mirrored an Italy deeply split over whether to press ahead with the painful austerity that helped to right its finances without curing a deep recession.

Pier Luigi Bersani’s centre-left bloc took the lower house of the parliament, while former prime minister Silvio Berlusconi’s centre-right staged a comeback and took the senate.

Coming in third, buoyed by a strong protest votes was comedian Beppe Grillo’s Five Star Movement.

Voters punished the outgoing technocratic government of Mario Monti for imposing the austerity measures.

The vote doesn’t bode well for a smooth transition, rather a return to unstable governments that plagued Italy for decades.

The impact could go far beyond the borders of the eurozone’s third-largest economy, shaking confidence in the single currency itself.

What will the the new government need to do to address the voter outcry and reassure financial markets? We look at all these issues in this edition of The Network.

Chris Burns, euronews

“Now wired into this edition of the Network is from Bucharest Corina Cretu, Romanian MEP and Vice-chair of the Progressive Alliance of Socialists and Democrats, or S&D.

“From the European parliament in Brussels, Sir Graham Watson, British MEP and President of the European Liberal Democrat and Reform Party (ELDR)

“Joining us from the euronews Brussels bureau is Fabian Zuleeg, Chief Economist at the European Policy Centre.

“Let’s start with a question to all of you starting with Corina: The big winner, to many, seems to be Beppe Grillo and that protest voting is making it difficult to form a government. How do you respond to that kind of populism? That could apply not only to Italy.”

Corina Cretu

“Populism and demagogy is very dangerous in Europe – it’s (Italy) not the only country where we face this situation. Anyhow, it’s a signal that other political policies might be applied that would bring something other austerity.”

CB, euronews

“Graham, voters are obviously fed up with politics as usual aren’t they?”

Sir Graham Watson

“Well they are, and this vote, the vote for Grillo is a kick in the pants for Italy’s established parties. One in four Italians voted for Beppe Grillo and his protest movement, but unfortunately it solves nothing. The country will be ungovernable over the coming weeks and that will hit Italy’s credit rating and I fear will make the situation worse rather than better.”

CB, euronews

“Fabian, the political situation in Italy, with Beppe Grillo and the protest vote – how can you look at this from an economic standpoint?”

Fabian Zuleeg

“It’s not entirely unexpected to have this situation, structural reforms are never that popular and also the social impact of the reforms is being felt by many. But, as Graham has just said, this doesn’t solve anything. We’re not going to be in a situation where the deep-rooted economic problems which Italy has can be tackled effectively when we have political deadlock.”

CB, euronews

“Let’s take a look at the big loser, Mario Monti, who came in behind Grillo. What does that say for EU policy? Because he was taking pro-EU measures. One in four people didn’t vote at all – that could be indicative of what they thought about the government before. What do you think Corina?”

Cretu

“It was the same situation in Greece, the call for a technocratic government failed. It’s a mistake. I think politician have a responsibility to govern.”

CB, euronews

“Graham, these technocrats were carrying out policy that the EU was saying was a good idea and the Central Bank was saying was a good idea and it brought the budget deficit to three percent of GDP. They (the technocrats) did accomplish certain things so why is there such a reaction against them?”

Watson

“Well, they were carrying out policy that many other countries in the European Union thought was a good idea, but also policy that the Italian parties themselves backed. It was the stepping down of the Italian parties in recognition of their failure and putting in place of a technocratic government which gave us some hope for the future of Italy. But unfortunately those same parties, or at least Mr Berlusconi’s party, decided to pull the plug on the whole thing just before Christmas and caused early elections.”

CB, euronews

“How do you see that Fabian?”

Zuleeg

“I think what we’re going to see now is that the markets are going to react badly. We have already seen that the reality is that while Monti’s reforms were not always popular with the Italian people, they were what were largely needed for the Italian economy and to satisfy the markets.”

CB, euronews

“So how do you see the formation of a government? How are they going to pull this off? Now Corina, your party group (Progressive Alliance of Socialists and Democrats) would perhaps favour this outcome. How can Italy find some sort of coalition? Would it be a grand coalition maybe?”

Cretu

“Of course it’s up to the president to appoint Bersani, we hope, because he is leading in the Chamber of Deputies now and we hope he will form a government, a grand coalition, and we hope we will avoid what you said in the beginning – popularism and demagogy in Italy.”

CB, euronews

“Graham, do you see a grand coalition here? And if Bersani did pull it off, would he be pulled down eventually by Berlusconi and Grill supporters?”

Watson

“I think a grand coalition would be very difficult and very few people would trust Berlusconi, particularly in view of what he did in bringing down Mario Monti’s government. What I think might just happen, and perhaps it’s too much to hope for, is that Italian elected politicians recognising the need for a majority in both houses of parliament actually come together to form some new party or some new alliance for the purpose of taking Italy forward. In the absence of that, I think we’ll have a period of drift, increasing dissolution and who knows? Elections later in the year that could lead to any outcome.”

CB, euronews

“Fabian, how do you think we can avoid gridlock here in the parliament?”

Zuleeg

“It’s very difficult to say. Part of the problem is that Berlusconi’s character, the kind of thing he has said during his election campaign, don’t really encourage a lot of cooperation with others. So I don’t know if there is the possibility for some kind of stable government to be formed without him. But I also don’t see that there will be anything stable with him.”

CB, euronews

“No matter who heads the government they have to take action not only to reassure their voters, but also the financial markets. How are they going to do that Corina? What’s the first measure they could take?”

Cretu

“The highest risk for Italy now is to become ungovernable and I think it would be the worst signal for the citizens, for the country and for the markets. The biggest vulnerability for Europe now and for Italy is the economy.”

CB, euronews

“Graham, what is the first thing any new government should be doing in Italy now?”

Watson

“I think if they want the support of the financial markets, which is going to be essential for investment, whatever government is formed has to give some commitment to carrying on with the tax reforms and the other structural reforms that Monti’s government was pursuing. But it’s hard to see how they will get those policies through government, because even if there’s a majority in the chamber, there’s unlikely to be a majority in the upper house and Berlusconi is going to hold all the cards.”

CB, euronews

“Fabian, this austerity has managed to bring GDP the budget deficit down to three percent of GDP, but we still have unemployment that’s over 12 percent – that’s higher than the European average. How do you address that now? Especially after this election which shows so many people are fed up?”

Zuleeg

“I think it’s critical that there’s new investment in the Italian economy, that there are impulses for growth, but unfortunately the political deadlock is going to be very wary to go in. It doesn’t look good for the Italian economy going forward.”

CB, euronews

“Really quickly to all three of you and just give me a ‘yes’ or ‘no’ answer. Do you see new elections in Italy before this year is out?”

Cretu

“I hope not. I hope there will be a stable government, but of course it’s unpredictable now.”

Watson

“I think they will happen, but who knows the circumstances? And who knows what it will produce? It’s very worrying.”

Zuleeg

“I think the exact timing isn’t clear, but there will be new elections and we have to have a resolution to actually change the European economic governance which we’re still working on.”