Italy's exit poll points to Prodi win

LONDON (MarketWatch) -- The first exit poll in Italy's general elections Monday afternoon pointed to a narrow victory for Romano Prodi, the leader of the center-left coalition, over Prime Minister Silvio Berlusconi.

According to the early poll, Prodi's coalition took 50% to 54% of votes in the lower house, while Berlusconi's alliance took 45% to 48%. Prodi's coalition also is seen winning the Senate.

Should the results be confirmed, it would be Prodi's second victory over Berlusconi. The centre-left leader and former European Commission president defeated Berlusconi for the premiership in 1996.

Berlusconi, 69, was seeking a second term in office after becoming the first post-war prime minister to carry out a full 5-year mandate.

Polls, which were banned in the final 15 days of the campaigning, had predicted a victory of the center-left.

The voting took place over two days and the polls closed at 3 p.m. local time on Monday. Two thirds of Italian voters had cast their ballot on Sunday.

Italians were voting under a proportional system, thanks to a law pushed through by Berlusconi's government to increase the chances that his smaller allies would win seats in parliament.

The flamboyant Berlusconi, whose campaign figures numerous outbursts, remained contentious until the bitter end. He voted Sunday in his home city of Milan, accompanied by his mother Rosa.

After he was overheard telling her to mark the symbol of his party, Forza Italia, on the ballot, polling officials castigated the billionaire media mogul for not respecting a ban on campaigning while voting was under way.

A clear winner won't be proclaimed until Tuesday morning.
The task facing Italy's next leader is momentous as the country is in said in need of reforms and an injection of optimism.

The country's gross domestic product was flat in 2005, the worst performance in the euro zone; its share of global trade has dropped to 2.7% from 4.6% in a decade; its fiscal deficit is expected to top 4% once again this year, in breach of European Union fiscal rules, and unemployment hovers at 8%.

"There's a lot of work to be done to take Italy out of the doldrums," said Vincenzo Guzzo, an economist at Morgan Stanley.

A thin majority will make stable government difficult
A close result would suggest it will be extremely difficult for Prodi to control his broad coalition, which ranges from centrists to unreformed communists.

There is hope, however, that the former economics professor, enlightened by his experience in Brussels will bring public finances under control. Analysts predicted that credit-rating institutions would likely give him until summer to prove he can curb spending.

"I believe Prodi would be more attentive to public finances and so the spread would likely stay where it is at least until July," said Anna Grimaldi, a Milan-based European economist for Banca Intesa, ahead of the election result.
"Prodi will be given the benefit of the doubt and granted more time by the ratings agencies and Brussels. I would play a widening bond spread if Berlusconi wins," she said.

But there are concerns that Prodi, hamstrung by loyalties to allies with diverging interests and a general hostility to free markets, may struggle to implement the reforms Berlusconi failed to bring about.

The two candidates' platforms were short on details. But overall, Berlusconi promised to abolish a homeowner's property tax; Prodi said he would revive an inheritance tax abolished by Berlusconi, but only for the richest, and also promised to cut payroll taxes to try to spur hiring. End of Story

Aude Lagorce is a reporter for MarketWatch in London.