By James Mackenzie and Gavin Jones
ROME, Feb 25 (Reuters) - Italians voted for a second and final day in a general election on Monday with a surge in protest votes increasing the risk of an unstable outcome that could undermine Europe's efforts to end its three-year debt crisis.
Opinion polls give the centre-left coalition led by former Industry Minister Pier Luigi Bersani a narrow lead but the race has been thrown wide open by the prospect of protest votes against austerity and corporate and political scandals.
"I'm sick of the scandals and the stealing," said Paolo Gentile, a 49-year-old Rome lawyer who said he had voted for the 5-Star Movement, an anti-establishment protest group set to make a huge impact at its first general election.
"We need some young, new people in parliament, not the old parties that are totally discredited," he said.
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Most of the voters interviewed outside polling stations by Reuters on Sunday and Monday expected the next government would quickly collapse, thwarting efforts to end an economic crisis.
"I'm very pessimistic, I don't think that whoever wins will last long or be able to solve the problems of this country," said Cristiano Reale, a 43 year-old salesman in Palermo, Sicily. He said he would vote for the far left Civil Revolution group.
A bitter campaign, fought largely over economic issues, has been closely watched by financial markets, nervous about the return of the kind of debt crisis that took the whole euro zone close to disaster and brought technocrat prime minister Mario Monti to office in 2011.
Italy is the third largest economy in the 17-member bloc and the prospect of political stalemate could cause dangerous market instability.
"There are similarities between the Italian elections and last year's ones in Greece, in that pro-euro parties are losing ground in favour of populist forces," said Mizuho chief economist Riccardo Barbieri.
"An angry and confused public opinion does not see the benefits of fiscal austerity and does not trust established political parties."
Voting ends at 3 p.m. (1400 GMT), with the first exit polls due shortly afterwards. Projections based on the vote count will be issued through the afternoon and the final result should be known late on Monday or early Tuesday.
An extremely close Senate race is expected in several battleground regions and this could delay the final result.
Italian markets were sanguine on Monday morning, with both stocks and bonds showing little change.
Many analysts believe that whatever the result, the next government will be forced to stick to Italy's fiscal commitments because of the fear of a sudden spike in borrowing costs if markets take fright.
The election result is likely to be the most fragmented in decades, with the old left-right division disrupted by the rise of 5-Star, led by fiery Genoese comic Beppe Grillo, and by Monti's decision to run at the head of a centrist bloc.
"It will be a vote of protest, maybe of revolt," said Corriere della Sera, Italy's largest newspaper, on Monday.
It noted that for the first time the winning coalition is unlikely to get more than a third of the votes, making it harder to govern and likely opening weeks of complicated negotiations.
It is unclear how Grillo's rise will influence the result, with some pollsters saying it increases the chances of a clear win for the centre-left, led by Bersani's Democratic Party (PD), because 5-Star is taking votes mainly from Berlusconi.
After the first day of voting on Sunday, about 54 percent of voters had cast their ballots, a sharp fall on the level of 62.5 percent seen at the same stage in the last election in 2008.
If the trend continues on Monday it will confirm the disillusion of voters with a discredited political class.
Bad weather, including heavy snow in some areas, is also thought to have hampered the turnout in Italy's first post-war election to be held in winter.
This could favour the centre-left, whose voters tend to be more committed than those on the right, which has strong support among older people.
"Given the lower turnout, people are betting on a victory of the centre-left," said a Milan trader.
CALL TO ARMS
The 5-Star Movement, backed by a frustrated younger generation increasingly shut out of full-time jobs, could challenge former premier Silvio Berlusconi's People of Freedom (PDL) party as Italy's second largest political force.
"Come on, it isn't over yet," was Monday's front page headline in Il Giornale daily, owned by Berlusconi's brother, a call to arms to get out the vote.
The 76-year-old Berlusconi, has pledged sweeping tax cuts and echoed Grillo's attacks on Monti, Germany and the euro in an extraordinary media blitz that has halved the lead of the centre-left since the start of the year.
Support for Monti's centrist coalition meanwhile has faded after he led a lacklustre campaign and he appears set to trail well behind the main parties.
Monti helped save Italy from a mounting debt crisis when he replaced a discredited Berlusconi in November 2011, but with the economy in its longest recession for 20 years analysts fear an electoral stalemate could delay vital moves to stimulate growth.
"I voted for the PD because a PD win is the only way to have a stable government and we need stability or we will end up like Greece," said Viola Rossi, an 80 year-old pensioner from Rome.
After drawing hundreds of thousands of supporters to its final campaign rally on Friday, Grillo has said he fears voting fraud to try to block a massive breakthrough, telling his supporters to wet the lead in the pencils they use to vote to prevent the crosses being rubbed out.
Whatever government emerges will inherit an economy that has been stagnant for much of the past two decades and problems ranging from record youth unemployment to a dysfunctional justice system and a bloated public sector.
If Bersani wins, it is far from clear that he will be able to control both houses of parliament and form a stable government capable of lasting a full five-year term.
Italy's electoral laws guarantee a strong majority in the lower house to the party or coalition that wins the biggest share of the overall national vote.
However the Senate, elected on a region-by-region basis, is more complicated and the result could turn on a handful of regions where results are too close to call, including Lombardy in the rich industrial north and the southern island of Sicily.
Many politicians and analysts believe Bersani and Monti will end up in an alliance after the vote, despite a number of spiky exchanges during the campaign and Monti's insistence that he will not join forces with Bersani's leftist allies.
As well as the national election, voters are also casting their ballots to elect new regional administrations in Lombardy, Lazio and Molise.
BEFORE YOU GO
02/25/2013 5:17 PM EST
A Victory...For Italian Democracy?
@ duncanmcdonnell :
Amid the confusion, today provides 1 nice reminder: Italian democracy's fate is not solely in hands of the markets, the EU, or editorials.
02/25/2013 5:09 PM EST
Chamber Of Deputies Deadlock?
The latest figures released by the interior ministry shows a 0,72% margin between the Centre-left and the Centre-right coalitions.
02/25/2013 4:54 PM EST
Monti 'Satisfied' With Results
Outgoing Italian Prime Minister Mario Monti said on Monday that no country has such a bad electoral law as Italy. Monti added that he is satisfied with results of his centrist coalition.
@ CiancioTR :
Monti says no country has such a bad electoral law as Italy #italyreuters #italyvote
02/25/2013 4:50 PM EST
Senate Results Could Change
According to HuffPost Italy, if the Centre-left coalition wins in the norther region of Piedmont, the Senate results would be overturned and the Democratic Party would win with a relative majority.
02/25/2013 4:38 PM EST
Shock Wave Results
The Guardian reporters John Hooper and Lizzy Davies recap the biggest events of the day and come to a sobering conclusion.
Crucially, it seemed certain that neither right nor left could obtain an outright majority in the upper house, where the balance would be held by the M5S. So far, Grillo has ruled out supporting either side in his drive to sweep away Italy’s existing political parties and the cronyistic culture they support.
Exceeding even the most adventurous pre-electoral predictions, the populist M5S was set to emerge as Italy’s biggest single party - a result that will send shock waves through the eurozone and beyond. Because it is running alone and not in a coalition, however, Grillo’s movement lagged the two big alliances in the number of seats.
The emerging result indicated that fresh elections were a strong possibility and, at best, foreshadowed a weak government unable to pass the tough reforms Italy needs to enhance its grim economic prospects.
Read the full analysis on the Guardian website.
02/25/2013 4:33 PM EST
@ AP :
Stocks plunge as investors worry that Italy could be seized with political paralysis; Dow drops 216: http://t.co/cAavWvIAuU -RJJ
02/25/2013 4:09 PM EST
Italy's Complicated Election Law
The Guardian explains Italy's complicated election laws, and recaps the latest results:
Election laws in Italy mean the biggest party in the Chamber of Deputies is guaranteed a 54% majority. But the Senate has no such "majority bonus". The latest projection from Rai shows Berlusconi's bloc winning 112 Senate seats, the centre-left 105, Grillo 64, with Monti's centrists on only 20. The Senate majority is 158.
Read more from The Guardian here.
02/25/2013 3:55 PM EST
Grillo Thanks His Supporters
Beppe Grillo spoke for the first time since the closing of the polls, thanking all his supporters for "a fantastic adventure."
Grillo added on his movement's YouTube channel that Italy's two main parties have failed. "They have been around for the past 25 years, they embody Italy's problem."
"Handing back the country to Silvio Berlusconi for six months, or a year, is a crime against the galaxy, against the entire galaxy," Grillo also said.
02/25/2013 3:46 PM EST
Can't Keep A Good Man Down
The detail of a ripped election poster shows a smiling Silvio Berlusconi on February 25, 2013 in Livorno, Italy. (Laura Lezza/Getty Images)