Elections in Italy are in full swing, with voting having begun Sunday.

Financial markets are keeping a close eye on the voting with the biggest worry being a "hung Parliament" with the outcome unable to establish a stable government that would be able to move forward on necessary reforms and austerity measures needed to bring down the country's swollen debt.

Italy is mired in recession with unemployment above 10% and is the third most indebted country in the world after the US and Japan. At the height of the crisis, investors pulled away from Italian public debt pushing interest rates on the country's bonds to above the 7.0% danger threshold.

Markets are expecting Pier Luigi Bersani's "Democratic Party" (PD) to walk away with a victory and form a coalition with current technocrat Prime Minister Mario Monti that would hold a pro-European stance designed to follow EU requirements on debt reduction. Yet, speculation abounds that Monti's party has been losing popularity to Italian comedian Giuseppe "Beppe" Grillo's protest movement.

Nevertheless, Citigroup estimates that the probability of an inconclusive outcome is only 7.0%.

Scandal has been swirling around Silvio Berlusconi who is thought to be running in second place. Just yesterday, three women staged a protest in Milan as Berlusconi went to the polls. The ladies removed their shirts and screamed "Basta Berlusconi" (enough of Berlusconi) with the words painted on their fronts and backs. Berlusconi was elected Prime Minister on three earlier occasions and resigned after being accused of paying an underage belly dancer for sex and of tax evasion.

The last legal polls before the 15-day blackout period started gave Bersani's center-left party a victory with 34.7%, while Berlusconi followed with 29% of the vote.

Polls close Monday at 14:00 London time with exit polls to be released shortly thereafter. Projections on the actual votes being counted is expected to begin being released at 15:00.

JM

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