Mr Berlusconi quit as Prime Minister in 2011 amid a major financial crisis.

At the time, markets had lost confidence in his ability to push through spending cuts and difficult labour market reforms deemed necessary to revive the country’s economy.

Italy’s government was faced with spiralling borrowing costs in the bond markets, while the country’s banks were forced to turn to the European Central Bank for emergency loans.

The elections follow the end of the caretaker premiership of technocratic Prime Minister Mario Monti, who took over from Mr. Berlusconi and pushed through a plethora of economic reforms and regained the markets’ trust.

Deadlock concerns

The Milan bourse had been up 4% for the day in mid-afternoon trading, led by Italy’s major banks, which were up well over 7%, as exit polls raised hopes that a centre-left government under Pier-Luigi Bersani would be able to form a majority in the lower house of parliament.

Across the rest of Europe, bank shares gained 3%-4% on the news.

Italy’s implied cost of borrowing for 10 years on the bond markets fell to 4.17% from 4.33% at the end of Friday, as the perceived riskiness of lending to the government fell.

Meanwhile, the euro gained a cent against the dollar to $1.33.

However, early data from the Senate election count then emerged in the late afternoon suggesting that the centre-right Mr Berlusconi would gain control of the upper house, raising concerns of legislative deadlock.

Markets rapidly gave up all of their gains for the day, with the stock market bouncing slightly just before the close, with Milan’s FTSE MIB index ending the day only 0.7% higher.

The government’s 10-year borrowing cost ended Monday fractionally higher at 4.49%, while the euro was back at $1.318 against the dollar, as hopes for greater political stability evaporated.

Reprinted from BBCnews