So, with all the usual commonplace reactions to the Italian election: 'chaos', 'ungovernable', and so on - it's time for a contrarian view. In a number of ways this is a great outcome.
First, Berlusconi will be happy with the result for sure, because it gives him huge bargaining power - no majority in the Senate is feasible without him. But let's remember that his coalition won only 29% of the vote, down from 47% in 2008, and his party, the PDL, won 21%, down from 37%. So the worst expression of Italian corruption and conservatism took a battering in the polls. Italians are not as forgiving as we feared.
Second, the two parties that represented continuity in sticking to the absurd commitment to austerity - the PD and Monti's Scelta Civica - both performed way below expectations. Monti's result is hard to read as anything but a rejection of European technocracy and its perverse insistence on pain and sacrifice as the way to recovery. Greece and Spain have largely caved, Italy, the biggest and most important Southern economy, and probably the most self-confident despite its problems, has said 'basta'. This has got to be good for Europe - better we accept this now, then have to wait for Golden Dawn to win in Greece.
Third, Italy's venal and reactionary political class is obviously a huge problem, and the amazing performance of Beppe Grillo's Five Stars Movement - at 25% the most voted individual party - shows that many Italians, and especially the young, have had enough of their politicians. Again. Of course, Berlusconi himself emerged out of the ruins of the last exercise in eliticide, back in the early 1990s. He then proceeded to piece together a new regime of rent-seeking and policy paralysis which is responsible for Italy's long-term decline. Grillo may have no policies, but as a protest vote you can't get much better than that. If nothing else, Grillo sends a clear signal to the crooks that a large number of Italians have had enough of the stealing and incompetence.
Now, this does not mean I'm optimistic. But if we add this result to the steady shift in the debate towards the inescapable conclusion that austerity is a disaster (even Olivier Blanchard thinks so now), then perhaps Europe will edge towards some more sensible approach to preserving the euro. Will this solve all our problems? No. But if Merkel wants the euro to survive, she'll have to start listening to Southern European voters as well as her own.