Four days after the Italian elections only one thing is clear: A majority of Italian voters have rejected austerity.
The problem is their victory came up short by the slimmest of margins.0.36%. That's the difference between a firm new government that could move Italy out of the Eurozone and the constitutional logjam Italian voters woke up to the next day.
As it is, they could roll the dice on a new election, but that could also make matters worse.
Since Italy's a big country with a chunky economy, that's likely bad news for us all.
Berlusconi is Back, and So Is the Eurozone Debt Crisis
Since the beginning of the year, the markets have been behaving as if the Eurozone debt crisis has been magically solved.
Yields on Spanish and Italian debt are trading more than 1% lower than at their peak, while world stock markets have soared close to all-time highs.
Unfortunately, you can expect that all of this euphoria will fade when the Italian elections take place on February 23-24.
Why?...It's summed up in two words: Silvio Berlusconi.
That's because until recently a win by the former Prime Minister wasn't seen as very likely. Not long ago, The EU establishment believed they had the Italian elections completely wired.
The socialist "Democratic party" led by Pier Luigi Bersani was expected to win and be supported by a coalition of center parties led by the EU's favorite, Mario Monti, imposed as prime minister in November 2011.
Both of these candidates were safely pro-euro, and prepared to put Italy through a fair amount of "austerity" to keep it, provided the handouts kept flowing from Germany and the European Central Bank. The status quo wouldn't be threatened.
Meanwhile, the two anti-euro candidates were supposed to be comedians.
One is an actual comedian named Beppe Grillo, leading an eccentric "Five Star Movement," while the other is the aforementioned Silvio Berlusconi, who is currently under indictment for sex with under-age prostitutes and therefore (in the eyes of the EU bureaucracy) not seen as a serious threat.
At best it was thought Berlusconi and Grillo might get as much as 30% of the vote between them, but it wouldn't give them any significant power.
Well, let's just say things have changed.
A Defeat for the Eurozone?According to the latest polls, Berlusconi's party would get 30% of the vote on its own, while Grillo's would earn a solid 15%. Not bad for a couple of comedians.
As for the establishment picks, Bersani's party still leads with about 34%, while Monti's supporters trail with around 12%.
That suggests a very close vote, or possibly (if as sometimes happens, voters are falsely claiming to opinion pollsters that they support the "respectable" parties) even a Berlusconi victory, provided he could come to a satisfactory arrangement with Grillo.
But here's where it gets slippery for the EU: Anything but a solid Bersani/Monti majority is bad news for the euro, or at least for Italy's participation in it.
Italy's budget is in fact quite close to balanced (Berlusconi had repaired much of the damage done by his leftist predecessors) which means an Italian exit from the euro -- getting cut off from EU handouts and austerity programs -- would be pretty painless.
However, if Italy left the euro, it's likely that Spain, Greece, Portugal and very likely France would also be forced out.
But a Berlusconi return to power is not the threat faced by the euro these days.