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Italian Election Inconclusive; Early Global Markets Drop

"Markets go their own way. They are independent and also a little crazy," he said, adding that a government can be cobbled together if rival politicians are willing to "make some sacrifices."

There were some indications that he could be right: An Italian treasury bond sale totaling 8.75 billion euros ($11.75 billion) sold out Tuesday morning despite higher rates.

But stock indexes across Europe were trading sharply lower, though above the lows they hit in the first hour of trading. Germany's DAX was down 1.8% at 7,636 while the CAC-40 in France fell 2.2% to 3,639. The FTSE 100 index of leading British shares was 1.3% lower at 6,271

Italy is hugely important for the future of the euro, and its apparent stability over the past six months has been one of the reasons that concerns over the currency have eased. Of the 17 European Union countries that use the euro, Italy has the second-highest debt burden as a proportion of its gross domestic product, at 127%. Only Greece's is higher. Italy has to spend around 80 billion euros a year just to service its debt.

The Monti government enacted wide-ranging reforms to the budget and the economy. Though its borrowing rates have fallen in financial markets, the cost to Italians has been high, with the country mired in an 18-month recession and unemployment on the rise.

Monti was a big loser in the election and Berlusconi ruled out an alliance with his successor, whom he blamed for driving Italy deeper into recession.

The worry across Europe, and in financial markets everywhere, is that Italy's appetite for reform may wane and its debt situation may deteriorate.

Though Italy's annual borrowing -- its budget deficit -- is relatively small compared with other euro countries at 3% of its annual gross domestic product, its overall debt stands at a colossal 2 trillion euros.

Last July, concerns over the country's ability to pay down its debt -- despite the Monti reforms -- and the stability of the wider eurozone sent the interest rate on its 10-year bonds back up to a near-unsustainable 6.36%. This prompted European Central Bank chief Mario Draghi to offer to buy up unlimited quantities of short-term debt in countries struggling with high borrowing costs.

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