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Italian campaign works to swing remaining voters in final week before election

Italian voters have braced for the impact of an upcoming onslaught of tax-cut promises and attacks on the European Union as the four leading candidates begin the final stretch of the campaign, taking to airwaves and a mad scramble to visit to all corners of the republic before the polls are opened.

After a prolonged period of suspense and campaigning, Italy goes to the polls February. 24-25 in the first parliamentary election since Europe’s sovereign debt crisis roiled the political establishment into a proverbial maelstrom. However, despite the recent buildup, nearly 20% of Italian voters are still fair game to the candidates, which pollsters say constitutes a large enough proportion as to potentially decide the election in the final week. However, the immediate risk is an inconclusive result that denies victory to any and leads to gridlock, requiring a second vote.

“The biggest issue is, is it going to be easy to form a government?” wrote Marc Ostwald, a rates strategist at Monument Securities Ltd. in London. Silvio Berlusconi kicks off the week with a rally today in Milan, capital of the battleground region of Lombardy near the Alpine foothills. The former premier will reiterate his pledge to hand out more than $5 billion in property-tax refunds as he seeks to build a blocking minority in the Senate. Berlusconi’s main rival, front-runner, Pier Luigi Bersani may appear on the other end of Italy in Cosenza, Calabria.

The duel between Bersani and Berlusconi, whose respective forces have dominated Italian politics since 1994, is muddied by the campaigns of Prime Minister Mario Monti, a professor-turned- politician at age 69, and comedian Beppe Grillo. Monti has sought to position himself as a kingmaker by courting both Bersani and the forces backing Berlusconi. Grillo has excluded alliances and embraced the role of spoiler.

Italians face trying times as they are being called to vote with the economy in a quagmire, culminating in its fourth recession since 2001, and having contracted for six quarters through the final three months of last year. However, despite Italy’s 10-year government bond yield, which reached a euro-era record of 7.261% on Nov. 25, 2011, the yields were holding fast at just 4.409% earlier today.

The election outcome “remains highly uncertain,” Giada Giani, an economist at Citigroup Inc. wrote in a research report last week. “Small moves in the votes can lead to large swings in the Senate seat allocation.” The upper house of Italy’s parliament is where Bersani, a former communist and labor-union favorite, is most vulnerable as seats are doled out on a regional basis, rendering national popularity less meaningful.

Bersani will probably need a post- vote alliance with Monti to secure a majority, a move that would please bond investors satisfied with the premier’s 15-month tenure, according to Citigroup and Eurasia Group. Bersani had 33.8% support in an SWG Institute survey published February 8, the day before Italy’s two-week polling blackout began. That compares with 27.8% for Berlusconi, 18.8% for Grillo and 13.4% for Monti. According to Italian election law, bonus seats are handed out in both the Senate and the Chamber of Deputies, allowing a party to secure a majority without winning 50% of the votes.

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