Italian politicians continue to wage war on the formation of a new government with little progress having been made by the parties after the undecided election results.

"The discussion on the formation of a new government in Italy will continue. Investors should prepare for more uncertainty," warned UniCredit in Monday morning's market note.

Democratic Party (PD) Chief Pier Luigi Bersani insisted that he would move ahead to form government despite not having won a clear majority in the Italian Senate.

"We have 460 parliamentarians, double what the right (lead by Silvio Berlusconi) and triple what (Bepe) Grillo (head of the antiestablishment party) got", Bersani said Sunday in an interview with RAI3. The PD leader has repeatedly insisted that he will not need to form a coalition with Berlusconi's party.

Italian President Giorgio Napolitano has indicated that he wishes to avoid the process of holding new elections. Napolitano has the power to dissolve Parliament and set up a technocrat government in much the same way that Mario Monti came to power as the previous Prime Minister.

It should be remembered though that Monti made a poor showing in the last elections due to the backlash of public sentiment against austerity measures. In this context, Napolitano pleaded with the heads of the three principal parties to set aside their differences and use "realism, a sense of responsibility" to overcome the deadlock.

However, over the weekend Grillo insisted that his party would not form a pact with either Bersani or Berlusconi and would face each vote according to the party's own agenda. The first session of Parliament is scheduled for March 15th.

JM

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