ROME (Reuters) - Italy's stunned political parties searched for a way forward on Tuesday after an inconclusive election gave none of them a parliamentary majority and threatened prolonged instability and a renewal of the European financial crisis. 
 
 The results, notably the dramatic surge of the anti-establishment 5-Star Movement of comic Beppe Grillo, left the center-left bloc with a majority in the lower house but without the numbers to control the upper chamber, the Senate. 
 
 Financial markets fell sharply at the prospect of a stalemate that reawakened memories of the crisis that pushed Italy's borrowing costs toward unsustainably high levels and brought the euro zone to the brink of collapse in 2011. 
 
 "The winner is: Ingovernability," ran the headline in Rome newspaper Il Messaggero, reflecting the deadlock the country will have to confront in the next few weeks as sworn enemies are forced to work together to form a government. 
 
 Ratings agency Standard & Poor's said on Tuesday that policy choices of the next Italian government would be crucial for the country's creditworthiness, underlining the need for a coalition that can agree on new reforms. 
 
 Pier Luigi Bersani, head of the center-left Democratic Party (PD), has the difficult task of trying to agree a "grand coalition" with former prime minister Silvio Berlusconi, the man he blames for ruining Italy, or striking a deal with Grillo, a completely unknown quantity in conventional politics. 
 
 The alternative is new elections either immediately or within a few months, although both Berlusconi and Bersani have indicated that they want to avoid a return to the polls if possible: "Italy cannot be ungoverned and we have to reflect," Berlusconi said in an interview on his own television station. 
 
 For his part, Grillo, whose movement won the most votes of any single party, has indicated that he believes the next government will last no more than six months. 
 
 "They won't be able to govern," he told reporters on Tuesday. "Whether I'm there or not, they won't be able govern." 
 
 He said he would work with anyone who supported his policy proposals, which range from anti-corruption measures to green-tinted energy measures but rejected suggestions of entering a formal coalition: "It's not time to talk of alliances... the system has already fallen," he said. 
 
 The election, a massive rejection of the austerity policies applied by Prime Minister Mario Monti with the backing of international leaders from U.S. President Barack Obama to German Chancellor Angela Merkel, caused consternation across Europe. 
 
 German Finance Minister Wolfgang Schaeuble put a brave face on it, saying "that's democracy". 
 
 Spanish Foreign Minister Jose Manuel Garcia-Margallo was more pessimistic. 
 
 "This is a jump to nowhere that does not bode well either for Italy or Europe," he said. 
 
 A long recession and growing disillusionment with mainstream parties and tax-raising austerity fed a bitter public mood and contributed to the massive rejection of Monti, whose centrist coalition was relegated to the sidelines. 
 
 Projections by the Italian center for Electoral Studies showed that the center-left will have 121 seats in the Senate, against 117 for the center-right alliance of Berlusconi's PDL and the regionalist Northern League. Grillo would take 54. 
 
 That leaves no party with the majority in a chamber which a government must control to pass legislation. 
 
 "THE BELL IS RINGING" 
 
 On a visit to Germany, President Giorgio Napolitano said he would not comment until the parties had consulted with each other and Bersani called on Berlusconi and Grillo to "assume their responsibilities" to ensure Italy could have a government. 
 
 He warned that the election showed austerity policies alone were no answer to the economic crisis and said the result carried implications beyond Italy. 
 
 "The bell is ringing for Europe as well," he said in his first public comments since the election. 
 
 He said he would present a limited number of reform proposals to parliament, focusing on jobs, institutional reform and European policy. 
 
 However forming an alliance may be long and difficult and could test the sometimes fragile internal unity of the mainstream parties. 
 
 "The idea of a majority without Grillo is unthinkable. I don't know if anyone in the PD is considering it but I'm against it," said Matteo Orfini, a member of Bersani's PD secretariat. 
 
 "The idea of a PD-PDL government, even if it's backed by Monti, doesn't make any sense," he said. 
 
 For his part, Berlusconi won a boost when his Northern League ally Roberto Maroni won the election to become regional president of Lombardy, Italy's economic heartland and one of the richest and most productive areas of Europe. 
 
 For Italian business, with an illustrious history of export success, the election result brought dismay that there would be no quick change to what they see as a regulatory sclerosis that has kept the economy virtually stagnant for a decade. 
 
 "This is probably the worst possible scenario," said Francesco Divella, whose family began selling pasta under its eponymous brand in 1890 in the southern region of Puglia. 
 
 Berlusconi's campaign, mixing sweeping tax cut pledges with relentless attacks on Monti and Merkel, echoed many of the themes pushed by Grillo and underlined the increasingly angry mood of the Italian electorate. 
 
 But even if the next government turns away from the tax hikes and spending cuts brought in by Monti, it will struggle to revive an economy that has scarcely grown in two decades. 
 
 Monti was widely credited with tightening Italy's public finances and restoring its international credibility after the scandal-plagued Berlusconi, who is currently on trial for having sex with an under-age prostitute. 
 
 However, Monti struggled to pass the kind of structural reforms needed to improve competitiveness and lay the foundations for a return to economic growth. A weak center-left government may not find it any easier. 
 
 The view from some voters, weary of the mainstream parties, was unrepentant: "It's good," said Roger Manica, 28, a security guard in Rome, who voted for the center-left PD. 
 
 "Next time I'll vote 5-Star. I like that they are changing things, even if it means uncertainty. Uncertainty doesn't matter to me, for me what's important is a good person who gets things done," he said. "Look how well they've done." 
 
 (Additional reporting by Barry Moody, Gavin Jones, Lisa Jucca, Steven Jewkes, Steve Scherer, Catherine Hornby and Massimiliano Di Giorgio, Annika Breidthardt in Berlin. Writing by Philip Pullella and James Mackenzie; Editing by Peter Graff) ||||| It was a nice moment, but it was short. The first exit polls from the election in Italy were greeted with relief in Brussels and Berlin on Monday; the stock markets in Milan, Frankfurt and London ticked upwards and the interest rates on Italian sovereign bonds dropped. Silvio Berlusconi had fallen short of his goal. His opposite, it seemed, had won the election, the center-left candidate Pier Luigi Bersani. Half of Italy was pleased, as was the rest of the world. 
 
 But just a short time later, the stock rates froze and the bond rates began climbing again. New forecasts showed that Berlusconi had won a majority in the Senate, the second house of parliament in Rome. Furthermore, the "Five Star" movement of the ruthless former comedian Beppe Grillo had nabbed 24 percent in the Senate, according to exit polls. As a result, Berlusconi and Grillo together have a blocking majority. Without their approval, laws cannot be passed. They may not like each other, but they are both euroskeptics, opposed to "the Brussels bureaucrats." And they have vowed resistance to the "dictates from Berlin." Indeed, they stand opposed to everything that a Bersani government seeks to -- and must -- accomplish. Already, there are voices -- mostly from the Bersani camp -- speaking of new elections. Post-election Italy, they say, is ungovernable. At the very least, it is likely to take some time before a government can be assembled, if it can be done at all. 
 
 The results from the election on Sunday and Monday present perhaps the worst scenario possible, short of a Berlusconi victory. Europe is bound to suffer. An ailing Italy -- the third largest economy in the euro zone -- with a weak government is bound to once again become a plaything of the financial markets. Rome's massive, 2 trillion mountain of debt will continue to grow, as will risk premiums on Italian bonds, tearing new holes in the country's budget. And a wobbly Italy presents an acute danger to all of Europe. Unless Bersani can find a partner that grants him a Senate majority, an eventuality which looks highly unlikely. 
 
 In parliament, the center-left was able to secure a majority. His lead over Berlusconi's alliance is not large, but Italian law grants the winner a minimum of 340 seats, representing a 54 percent majority. The rule is designed to ensure a stable government, and it works, in the lower house at least. 
 
 Monti Loses Big 
 
 But in the Senate, extra seats are granted on a regional basis. And there, the situation doesn't look good for Bersani's dream of a stable government. Given Berlusconi's tiny lead, the center-left leader would need but a small coalition party to secure a majority. Indeed, that was to be the role played by outgoing prime minister Mario Monti. 
 
 But Monti, an economics professor once celebrated as Italy's savior, lost big on Sunday and Monday, landing well behind even Grillo. He had influential backers, including the Catholic Church, Italian business leaders, foreign leaders and, most of all, Brussels and Berlin. But he failed to gain significant support among the electorate. He received a mere 10.5 percent in the parliament and a weak 9.2 percent in the Senate, according to exit polls, a feeble result. The majority of Italians -- young and old, rich and poor -- have suffered from rising taxes, shrinking buying power and a wave of bankruptcies triggered by Monti's austerity policies. They opted for anything but a continuation of his government. 
 
 Still, even Monti's meagre haul would be enough to push Bersani beyond Berlusconi in the Senate. But if Grillo's Five Star block votes with Berlusconi's alliance against the center left, they can easily block any law not to their liking. And without the Senate, it is impossible to govern Italy. Every law has to find approval in both houses. Which means that Bersani will have to go looking for additional allies. 
 
 During the campaign, he said that he was open "to all alliances," and a pact with Monti seemed the most likely. But even that partnership would be fraught. Monti belongs to the center-right camp and his economic policies tend to be conservative. Prior to becoming prime minister, he was a consultant for Goldman Sachs and a board member of the Bilderberg Conference, where the world's rich and powerful meet away from the public eye. Bersani, for his part, comes from a communist grouping that morphed into a Social Democratic reform party. His friends are union leaders rather than global players of the financial world. Monti is close to the Christian Democratic German Chancellor Angela Merkel. Bersani's preference is for the Socialist president of France, François Hollande. 
 
 "We will continue austerity policies to pay down the sovereign debt," Bersani pledged before the election, adding that he would ensure "a bit more equality and more jobs." 
 
 Alliance with Monti? 
 
 Stefano Fassina, a professor of economics who belongs to Bersani's Democratic Party, was more concrete. The austerity policies pursued thus far, he said, have only led to recession, and he promised that his party would not introduce additional belt-tightening measures. He said that growth must be stimulated via increased state spending on education, research and infrastructure. That, of course, would only increase the Italian debt load -- and would hardly find approval from Monti. 
 
 Furthermore, Bersani is allied with Niki Vendola, head of Left Ecology Freedom. He is even more opposed to EU-wide austerity than the Democratic Party. Monti said during the campaign that he was uninterested in joining Vendola in a coalition, saying Bersani would have to jettison the party if he wanted his support. The openly homosexual Vendola also hopes to establish a legal basis for gay marriage -- a plan to which Monti is opposed. 
 
 And should Bersani make too many compromises in the effort to secure Monti as a partner, Vendola is likely to turn his back. A coalition would become impossible under such a scenario. 
 
 If a partnership with Monti seems difficult, however, one with the "Grillini," as Grillo's followers are called, is virtually impossible to imagine. They believe that politicians and bankers, judges, business leaders and the press -- in short, the entire establishment -- has united against the people, simple Italians and youth. 
 
 Berlusconi's Interests 
 
 Indeed, the potential behavior of the Grillini in parliament is one of the great mysteries left behind by the Italian election. Will they remain silent? Will they vote against everything? Or would some of them ally themselves with a Bersani government if they are promised radical reforms to the country's political system? 
 
 Even should such an alliance be created, it would hardly be a stable one. Particularly given that Grillo himself has no interest in becoming a parliamentarian. He prefers to remain on the outside, in opposition against the establishment. 
 
 And Berlusconi? His campaign alliance with the Northern League isn't likely to last, nor does his party seem built for the long haul. But he will do his best to interfere with the creation of the next government and to block its plans in parliament. After all, he remains fuelled by a powerful motivation: that of protecting himself from the Italian judiciary. Indeed, that would be the price for his participation in a coalition with Bersani -- perhaps even with Monti as head of government. 
 
 That, though, is not particularly realistic. And it would be devastating for Italian democracy. ||||| Italy faced political paralysis Monday as near-complete results in crucial national elections showed no clear winner and raised the possibility of a hung parliament. The uncertainty bodes ill for the nation's efforts to pass the tough reforms it needs to snuff out its economic crisis and prevent a new round of global financial turmoil. 
 
 Nuns leave a polling station after voting in downtown Rome, Sunday, Feb. 24, 2013. Italy votes in a watershed parliamentary election Sunday and Monday that could shape the future of one of Europe's biggest... (Associated Press) 
 
 Former Premier Silvio Berlusconi exits a booth as he votes in a polling station in Milan, Italy, Sunday, Feb. 24, 2013. Italy votes in a watershed parliamentary election Sunday and Monday that could shape... (Associated Press) 
 
 A man casts his vote for the Italian Senate, in Piacenza, Italy, Sunday, Feb. 24, 2013. Italy votes in a watershed parliamentary election Sunday and Monday that could shape the future of one of Europe's... (Associated Press) 
 
 Outgoing Premier Mario Monti holds ballots prior to voting, in Milan, Italy, Sunday, Feb. 24, 2013. Italy votes in a watershed parliamentary election Sunday and Monday that could shape the future of one... (Associated Press) 
 
 Former Premier Silvio Berlusconi casts his ballot in Milan, Italy, Sunday, Feb. 24, 2013. Italy votes in a watershed parliamentary election Sunday and Monday that could shape the future of one of Europe's... (Associated Press) 
 
 The chaotic election scenes in the eurozone's third-biggest economy quickly snaked around globe _ sending the Dow Jones index plunging more than 200 points in its sharpest drop since November and causing Tokyo's red-hot benchmark index to sink nearly 2 percent at open. 
 
 A major factor in the murky result was the astonishing vote haul of comic-turned-political leader Beppe Grillo, whose 5 Star Movement has capitalized on a wave of voter disgust with the ruling political class. 
 
 That has coupled with the surprise return as a political force of billionaire media mogul Silvio Berlusconi, who was driven from the premiership at the end of 2011, to roil the Italian ballot. Berlusconi's alliance was neck-and-neck with center-left leader Pier Luigi Bersani's coalition for both Parliament's lower house and the Senate. 
 
 The ballot was so close that final official results were not expected until daytime Tuesday, at earliest. 
 
 The decisions Italy's government makes over the next several months promise to have a deep impact on whether Europe can decisively stem its financial crisis. As the eurozone's third-largest economy, its problems can rattle market confidence in the whole bloc and analysts have worried it could fall back into old spending habits. 
 
 The unfolding uncertainty raised the possibility of new elections in the coming months, the worst possible outcome for markets that are looking to Italy to stay the course with painful but necessary reform. 
 
 While Italy's postwar history has largely been one of revolving-door governments, it has never seen a hung parliament. Experts said that's likely to change now. 
 
 "This has never happened before," said James Walston, a political science professor at American University of Rome. He predicted such a swirl of political chaos that new elections may need to be called as soon as the new legislature chooses the nation's next president this spring. 
 
 The Italian election has been one of the most fluid in the last two decades thanks to the emergence of Grillo's 5 Star Movement, which has throbbed with anger at politics as usual. The movement came against a backdrop of harsh austerity measures imposed by technocrat Premier Mario Monti _ who has fared miserably in the elections. 
 
 While Grillo trailed the alliances of the two biggest mainstream forces, his movement looked set to become the biggest single party in Parliament's lower house _ a stunning result for a protest campaign that is just over three years old. 
 
 Many eligible voters didn't cast ballots, and a low turnout is generally seen as penalizing established parties. The turnout, at under 75 percent _ in a nation where it has historically been above 80 percent _ was the lowest in national elections since the republic was formed after World War II. 
 
 Disgust with traditional party politics likely turned off voters, although snow and rain _ this was Italy's first winter time national vote _ also could be a factor. 
 
 The decisions Italy's government makes over the next several months promise to have a deep impact on whether Europe can decisively stem its financial crisis. As the eurozone's third-largest economy, its problems can rattle market confidence in the whole bloc and analysts have worried it could fall back into old spending habits. 
 
 Bersani, a former communist, has reform credentials as the architect of a series of liberalization measures and has shown a willingness to join with Monti, if necessary. But he could be hamstrung by the more left-wing of his party. 
 
 His party would have to win both houses to form a stable government, and given the uncertainty of possible alliances, a clear picture of prospects for a new Italian government could take days. It is all but impossible that Bersani would team up in a "grand coalition" with his arch-enemy Berlusconi. 
 
 Grillo's camp also played down the prospect of cooperation with the ex-premier, who has been embroiled in sex and corruption scandals. 
 
 "Dialogue with Berlusconi? It is very difficult to imagine that Berlusconi would propose useful ideas (for the movement)," said 5 Star Movement candidate Alessandro Di Battista at Rome headquarters. "It never happened until now, but miracles happen." 
 
 Italy's borrowing costs have reflected the optimism that the country will stick to its reform plans. 
 
 The interest rate on Italy's 10-year bonds, an indicator of investor confidence in a country's ability to manage its debt, fell to 4.19 percent in afternoon trading Monday. Last summer, at the height of concern over Italy's economy, that interest rate was hovering at about 6.36 percent. 
 
 Milan's stock exchange closed slightly higher, with the benchmark FTSE MIB up 0.73 percent to 16,351 points. 
 
 With 99.7 percent of the lower house vote counted, the Bersani camp had had 29.55 percent of the vote, to Berlusconi's 29.17 percent. Grillo had 25.54 and Monti's alliance 10.56. 
 
 In the Senate, near complete Interior Ministry figures showed Bersani and his allies had nearly 32 percent while Berlusconi and his coalition partners were pulling nearly 31 percent. Grillo had more than 23 percent. The overseas Senate ballot was to be added to the total later Tuesday. 
 
 More important than the overall national numbers, however, was the state-of-play in large swing regions _ and Berlusconi was projected to win those. 
 
 Italy's complex electoral law calls for the Senate seats to be divvied up according to how candidates fare region by region, and Berlusconi appeared to be winning big in Lombardy, and also ahead in the closely watched regions of Sicily and Campania, around Naples. 
 
 A Berlusconi triumph in those key regions would likely hand him control of the upper chamber, which in Italy's legislative system is as powerful as the lower house. 
 
 When Berlusconi was forced out of office in November 2011, he was widely assumed to have joined the political dead. At 76, blamed for mismanaging the economy and disgraced by criminal allegations of sex with an underage prostitute, a comeback seemed impossible. 
 
 But one thing has become axiomatic about Berlusconi in his 20 years at the center of Italian politics: Never count him out. 
 
 This time around, in an age of wrenching austerity, he had a very simple campaign strategy: throw around the cash. 
 
 Berlusconi has promised to give back an unpopular property tax imposed by Monti _ with money from his own deep pockets, if need be. 
 
 Even his purchase of star striker Mario Balotelli for his AC Milan soccer team was widely seen as a ploy to buy votes. Berlusconi has also appealed to Italy's right-wing by praising Italy's former fascist dictator Benito Mussolini during a ceremony commemorating Holocaust victims. 
 
 "He played a very able game," said Walston. "Considering that he didn't fulfill his previous promises, it's extraordinary." 
 
 With near complete results, Bersani had a tiny edge in the lower chamber, where electoral law enables the biggest vote-getter there to end up with a bonus of more than 50 percent of the seats. 
 
 Monti's centrist coalition was having a terrible election, with his alliance getting roughly 10 percent. Although respected abroad for his measures that helped stave off Italy's debt crisis, the economist has widely been blamed for financial suffering caused by austerity cuts. 
 
 Analysts saw two big stories in Italy's election. 
 
 "The first is the big surprising increase scored by the 5 Star Movement, and the other is the disappointing result" of Monti's coalition, said Massimo Franco, a columnist with Corriere della Sera. 
 
 Berlusconi, who was forced from office in November 2011 by the debt crisis, has sought to close the gap by promising to reimburse an unpopular tax _ a tactic that brought him within a hair's breadth of winning the 2006 election. The billionaire media mogul only a few days ago told voters if need be, he'd reimburse the tax to them by shelling out from his own pocket to the tune of several billion euros (dollars). 
 
 Grillo's forces are the greatest unknown. His protest movement against the entrenched political class has gained in strength following a series of corporate scandals that only seemed to confirm the worst about Italy's establishment. If his self-styled political "tsunami" sweeps into Parliament with a big chunk of seats, Italy could be in store for a prolonged period of political confusion that would spook the markets. He himself won't hold any office, due to a manslaughter conviction. 
 
 "Italy has developed a two-bloc system. We now have a three bloc system!" Walston said, referring to Grillo's shock success. 
 
 "That might work in a country like Austria, or like Germany" where there aren't such marked differences between coalitions. But in Italy, he said, "the personal, policy and ideological differences are too big." 
 
 Most analysts believe Bersani would seek an alliance with center-right Monti to secure a stable government, assuming parties gathered under Monti's centrist banner gain enough votes. 
 
 While left-leaning Bersani has found much in common with Monti, a large part of his party's base is considerably further to the left and could rebel. 
 
 A key Monti ally called the result "totally negative" and had an even gloomier assessment for his nation. 
 
 "As far as Italy goes," said Gianfranco Fini, "I fear the worst is yet to come." 
 
 ______ 
 
 Barry reported from Milan.
– One of the most closely watched Italian elections of recent years has delivered a suitably dramatic result. Pier Luigi Bersani's center-left bloc has narrowly beaten Silvio Berlusconi's right-wing coalition to win control of the lower house, but failed to win a majority in the Senate—leaving Italy likely to face a hung parliament for the first time in its history, Reuters reports. Comedian-turned-politician Beppe Grillo's anti-establishment 5-Star Movement captured around a quarter of the vote, a stunning result that makes it the single largest party in the lower house. Control of both houses is needed to form a stable government and although Bersani's coalition won the most seats in the Senate, it looks as if it will be unable to pass laws without the consent of Grillo's anti-EU, anti-austerity movement, der Spiegel reports. A Berlusconi-Grillo alliance is seen as highly unlikely. "Dialogue with Berlusconi? It is very difficult to imagine that Berlusconi would propose useful ideas," a 5-Star Movement candidate tells the AP. "It never happened until now, but miracles happen." Predictions of political chaos in the EU's third-largest economy led to steep drops in markets worldwide.