Italy heads for hung parliament after far-right parties gather record votes

ROME, March 5 (Reuters) – Italian voters delivered a hung parliament on Sunday, flocking to anti-establishment and far-right parties in record numbers and casting the euro zone’s third-largest economy into political gridlock, initial results showed.If early projections are confirmed, none of Italy’s three main blocs or groups will be able to rule alone and there is little prospect of a return to mainstream, moderate government, giving the European Union a new headache to deal with.Scenarios now include the creation of a more euro-sceptic coalition, which would almost certainly push for a significant jump in welfare spending and challenge EU budget restrictions, or swift new elections to try to break the deadlock.READ MORE: Italians head to polls following neo-fascist, anti-migrant election campaignA rightist alliance including former prime minister Silvio Berlusconi‘s Forza Italia (Go Italy!) emerged with the biggest bloc of votes, ahead of the anti-system 5-Star Movement, which saw its support soar to became Italy’s largest single party.The ruling centre-left coalition came third, hurt by anger over growing poverty, high unemployment and mass immigration.The full result is not due for many hours and previous elections in Italy have seen wild swings as the count proceeds.A prolonged political stalemate could make heavily indebted Italy the focus of market concern in Europe, now that the threat of German instability has receded after the revival on Sunday of a grand coalition under Chancellor Angela Merkel.The euro dipped in Asia early on Monday, but remained prone to volatility as investors awaited final results.WATCH: Italy’s centre-right leaders in show of unity ahead of election

0:59 Italy’s centre-right leaders in show of unity ahead of election

“Italy is far from having sorted its long-standing problems, and now it will have new ones. Be prepared for long and complex negotiations that will take months,” said Lorenzo Codogno, a former chief economist at the Italian Treasury.Berlusconi’s centre-right alliance was seen taking around 37 percent in the upper house Senate, but in a bitter personal defeat for the billionaire media magnate, his Forza Italia party was overtaken by its ally, the far-right, anti-immigrant League.“My first words: THANK YOU,” League leader Matteo Salvini tweeted.The biggest winner of the night was clearly the 5-Star Movement, which was predicted to have won a third of all votes cast, while the ruling centre-left Democratic Party (PD) was projected to see its support collapse to 18.9 percent.“This is a real moment of glory,” Alessandro Di Battista, a leading 5-Star figure, told reporters as the first results arrived. “Everyone will have to come and talk to us,” he added.

“Italy ungovernable”

During two months of election campaigning, party leaders repeatedly ruled out any post-election tie-ups with their rivals. However, Italy has a long history of finding a way out of apparently intractable political stalemate.The 5-Star once rejected talk of any power sharing, but it has since modified its position and says it is willing to discuss shared policies but not negotiate over cabinet posts.READ MORE: Here’s how Italy’s new electoral rules could push populist parties to victoryLed by 31-year-old Luigi Di Maio, the 5-Star was formed in 2009 and has fed off public fury over corruption in the Italian establishment and economic hardship. But some analysts have questioned whether other parties would be able to work with it.“Di Maio wins, Italy ungovernable,” was the front page headline on the first edition of La Stampa newspaper.Parliament will meet for the first time on March 23 and formal talks on forming a government are not likely to start until early April.Pollster Federico Benini, head of the Winpoll agency, said vote projections suggested that 5-Star and the League would be the largest two parties in parliament and would comfortably have enough seats to govern together if they wanted.WATCH: Topless FEMEN protester disrupts Berlusconi at Italian polling station

2:16 Topless FEMEN protester disrupts Berlusconi at Italian polling station

They have in the past shared strong anti-euro views. But while the League still says it wants to leave the single currency at the earliest feasible moment, the 5-Star says the time for quitting the euro has passed.Founded by comedian Beppe Grillo, 5-Star has sought to allay fears in EU capitals in recent months over its policies, dropping some of its more radical proposals, like leaving NATO, and promising to be business-friendly if they win power.The 5-Star’s programme includes plans for “drastic” cuts to corporate taxes, slashing red tape and guaranteeing a minimum monthly income of up to 780 euros ($963) for the poor.READ MORE: Italian gunman with far-right ties targets African immigrants in drive-by shooting spreeThis so-called “Universal Wage” has helped the party draw massive support in the underdeveloped south, with pollsters predicting the 5-Star could sweep most first-past-the-post seats in regions below Rome.By contrast, Berlusconi and his far-right, populist allies were expected to win the majority of seats in the wealthier north, with the centre-left squeezed into a narrow stretch of territory across central Italy, including Tuscany.Populist parties have been on the rise across Europe since the 2008 financial crisis. Italy’s mainstream parties have found it especially hard to contain voter anger, with the economy still 6 percent smaller than a decade ago and unemployment stuck at about 11 percent.