26 February 2013
Last updated at 13:59 ET
Centre-left leader Pier Luigi Bersani says Italy is in a “dramatic situation” after election results that leave the country in political stalemate.
Stock markets and the euro have fallen amid concerns the deadlock could re-ignite the eurozone debt crisis.
But Mr Bersani, whose coalition won most seats in parliament, did not identify a preferred partner in government.
He said all political parties should take responsibility for the country.
Centre-right leader Silvio Berlusconi said earlier fresh elections should be avoided, and called for a period of reflection, which correspondents suggest could mean he is considering a very awkward alliance with his opponents on the centre-left.
Other European countries have urged Italian politicians to create a stable government as soon as possible – with France and Germany urging continued reform, and Spain describing the result as a “jump to nowhere”.
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The horse-trading will now begin. Pier Luigi Bersani has enough votes to dominate the lower house. That is not the case in the Senate. Even if he were to join forces with the former Prime Minister Mario Monti he would not be able to command a majority there.
He may try to operate a minority government but that will clearly be unstable. There may be an attempt to form a wider coalition to govern the country at a time of economic crisis but it is unlikely to survive the summer.
One unanswered question is whether Beppe Grillo will be open to a deal. Would his movement support, say, a centre-left coalition in exchange for widespread reforms of the political system? We don’t know. Buoyed up by success he has only promised to clear out the political class.
Sooner rather than later the country will hold another election.
In his first speech since the elections on Sunday and Monday, Mr Bersani said: “We are aware that we are in a dramatic situation, we are aware of the risks that Italy faces.”
His centre-left bloc won the lower house vote but failed to secure a majority in the Senate. Control of both houses is needed to govern.
A protest movement led by comedian Beppe Grillo won 25%, but the centrist bloc led by current Prime Minister Mario Monti came a poor fourth, with about 10%.
The outcome of the election, which comes amid a deep recession and tough austerity measures, was so close between the two main blocs that the margin of victory given in interior ministry figures was less than 1% in both houses of parliament.
The winning bloc automatically gets a majority in the lower house. But the same is not true in the Senate, where seat allocations are decided by region and can conflict with the national vote.
European Commission spokesman Olivier Bailly said the EU expected Italy to “honour its commitments” on debt and deficit reduction, and other structural reform, saying he understood the “concern expressed by Italian citizens”.
“The Commission has full confidence in Italian democracy and… will work closely with the future government towards the relaunch of growth and job creation in Italy,” he said.
BBC economics correspondent Andrew Walker says it will be difficult to form a new government with an agreed economic programme.
Shares and the euro fell as the outcome of the election became clear, amid concern that the reform agenda would be delayed.
Italy’s FTSE MIB index initially fell 4.7%, while London’s FTSE 100 shed 1.5% and share markets in Frankfurt and Paris also fell more than 2%.
In New York, the Dow Jones Industrial Average fell 1.55% and Asian markets lost between 0.7% and 2.2%.
The yield on Italian government bonds rose sharply, implying markets are more wary of lending to Italy.
Mr Berlusconi said everyone should now reflect on what to do next so that fresh elections could be avoided, adding: “Everyone must be prepared to make sacrifices.”
He would not do a deal with Mr Monti’s centrist bloc, he added, saying the prime minister’s poor showing was down to popular discontent with his austerity measures.
Mr Berlusconi, 76, left office in November 2011, facing claims of economic mismanagement as the eurozone struggled to contain Italy’s debt crisis.
Italians have had more than a year of technocratic government under Mario Monti. But his attempts to reduce spending caused widespread public resentment and his decision to head a centrist list in the parliamentary elections attracted little more than 10% of the vote.
In a surge in support, Mr Grillo’s anti-austerity Five Star Movement attracted more than a quarter of the vote, making it the most popular single party in the lower chamber.
Correspondents say this was an extraordinary success for the Genoese comic, whose tours around the country throughout the election campaign – hurling insults against a discredited political class – resulted in his party performing well in both chambers.
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