European chancelleries and international financial markets will be holding their breath as Italians begin voting today in one of the most unpredictable general elections of the country's post-war history.

Several bad outcomes are on the cards, as far as the rest of Europe is concerned, and the only good one looks increasingly unlikely.

Perhaps the worst nightmare for foreign observers is a miraculous return to power of Silvio Berlusconi, the disgraced former prime minister bounced from power in November 2011 in a "perfect storm" of national financial crisis and personal scandal.

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As austere economics professor Mario Monti took the helm, Berlusconi disappeared from sight. Power in his People of Freedom party was to pass to a younger generation, while Berlusconi, 76, prepared to spend his retirement playing with his grandchildren.

Berlusconi's resurrection from political death has been one of the most astonishing aspects of a bitterly-fought election campaign that has captured the attention of a jaded electorate, disgusted by their cynical leaders and an unstoppable torrent of sleaze.

Despite being currently on trial for having sex with an underage prostitute and being slapped with a prison sentence for tax evasion last October, Berlusconi has turned on his 1000-watt charisma, dashing from one television studio to another with an inexhaustible supply of gags and tempting electoral promises.

Opinion polls, which cannot be published in the last two weeks of the election campaign, have shown Berlusconi gaining ground on the centre-left favourites.

Pollsters don't expect him to win outright, but credit him with a strong chance of thwarting the centre-left's dream of a workable parliamentary majority.

Even more surprising than Berlusconi's revival has been the strong showing of the "anti-politics" Five-Star Movement (M5S), founded by a stand-up comedian from Genoa. In a country where most people get their news from television, tousle-haired maverick Beppe Grillo has campaigned exclusively in the piazzas and on the internet.

Grillo himself is not standing for parliament. He has a conviction for manslaughter after three people were killed in a car he was driving and so is unelectable under his own party's rules.

Candidates for his movement were selected in an online poll and are almost all young, inexperienced activists, remotely controlled with dictatorial firmness by the movement's 64-year-old founder, who has shouted himself hoarse in tireless denunciation of the country's political kleptocracy.

"Surrender, you're surrounded," he yelled at a massive rally in front of Milan Cathedral last week.

The simple and abrasive message seems to be getting across. Analysts credit Grillo with up to 20% of the national vote, which could give him more than 100 MPs and a possible veto over parliamentary business.

Paradoxically, one reassuring result for foreign observers and financial markets would be a clear victory by the centre-left coalition led by Pier Luigi Bersani, a colourless apparatchik from the former Communist Party.

As economy minister, Bersani showed an unusual propensity for reform and insists his party is responding to Italy's desperate desire for change, fielding a team of young candidates, 40% of them women.

But a lacklustre campaign has failed to connect with the public, leaving people feeling Bersani's Democratic Party (PD) is too busy dividing up government jobs to mount an effective campaign for a contest already in its pocket.

While Grillo secured the huge square in front of St John Lateran Basilica – a venue traditionally associated with the left – for his closing rally in Rome, Bersani closed his campaign in the intimate setting of a suburban theatre.

Bersani's campaign stayed on the defensive, according to Lucia Annunziata, the head of the Italian affiliate of the Huffington Post and a well-known television journalist, trying to avoid mistakes and reaching out to the party faithful, rather than to outsiders.

"They should have campaigned by promising change. Grillo did it. He said: 'The state's corrupt, let's sack them all.' That's what the PD should have been saying."

Perhaps the markets' preferred outcome would be a shotgun marriage between Bersani and Mario Monti's Civic Choice, combining the expansive policies promised by the left with the fiscal discipline of Monti's technocratic government.

But Monti has struggled to make an impact on the hustings or to convince conservative voters disappointed by Berlusconi to grant a retroactive electoral endorsement for his government's bitter economic medicine.

Even a television appearance in which he surprising everyone by adopting a dog – Berlusconi had just adopted an abandoned Sicilian mongrel – did little to humanise him. "Monti doesn't open his mouth when he speaks. He seems to have an ATM slot in place of a mouth," said satirical journalist Roberto D'Agostino.

Polls circulating among Italian journalists indicate Monti may struggle to win a significant number of seats in the Senate, where an eventual Bersani majority would be most insecure. An unsatisfactory outcome in the eyes of the financial markets – victory for Berlusconi or a parliamentary stalemate – could put Italian bonds under pressure and spark a new euro crisis.

THE contest is being closely watched in Germany, where the outcome could affect Angela Merkel's chances of being re-elected chancellor in the autumn.

A study by financial services company JP Morgan, published this month, said a hostile reaction from the markets to a Berlusconi victory could require a bailout for Italy under the European Stability Mechanism, which would need German support and would "severely damage" Merkel's hopes.

German influence has already been felt in the campaign, with Monti invoking the support of German leaders for him and their nervousness in relation to his rivals, and Berlusconi damning the professor as a German poodle, prepared to sacrifice Italian interests on the altar of the dominant European power.

Wolfgang Schauble, the German finance minister, scrambled to deny a recent report in the news magazine L'Espresso in which he was attributed the view that Italians were "too intelligent to repeat the error" of voting for Berlusconi.

The elections in the eurozone country with the slowest growing economy and largest public debt come against the backdrop of a steady drip of corruption scandals that have further tarnished the already suspect reputation of the country's ruling elite.

Finmeccanica, an arms group and the country's second-largest private employer, has recently lost two CEOs to corruption probes – the latest two weeks ago over alleged bribes on helicopter sales to India – and a third faces allegations of improper dealings with the family of the current economy minister.

Public disenchantment with waste and corruption in public life is likely to be expressed in a huge rise in abstention and a boom for Grillo's anti-corruption cohorts, making Berlusconi's recovery all the more surprising.

Though not so strong on governing, Berlusconi has shown himself a master at winning elections. This time the media magnate has shown all his old verve in seizing centre-stage and dominating debate.

A letter from the former prime minister promising reimbursement of an unpopular property tax has been so convincing that pensioners have been queuing at post offices to apply, even before the vote.

Berlusconi won plaudits for appearing on a hostile television talk show, where, to laughs, he wiped down a seat with a handkerchief after it was vacated by his foremost journalistic critic.

When Annunziata invited the main candidates and their staffs to a TV debate with representatives of the public, Bersani sent his staff but didn't come himself, while Berlusconi came alone.

When asked where his team was, Berlusconi joked: "My team plays on Sunday, so they're training," in reference to his football team, AC Milan.

An episode in which Berlusconi cracked a sexual joke at the expense of a female worker during a company visit seems to have had little impact on the campaign, as did allegations that he enjoyed a French kiss with a Cuban showgirl at one of his bunga bunga parties, which emerged in court in Milan on Friday.

Many Italians applaud Grillo's promise to wield his new broom vigorously. But some are worried that if M5S overtakes Berlusconi's party and becomes the parliament's second largest it could gain control over key parliamentary committees traditionally reserved for the opposition.

"We could have a 20-year-old who has never been abroad as head of the foreign affairs committee or an unemployed housewife in charge of the defence committee," said journalist Enzo Mangini. "If they put someone inexperienced in charge of the secret services committee, they'll be eaten alive."

Mangini is also worried that M5S has no foreign policy. D'Agostino was more optimistic, predicting the "Grillini" would quickly learn the parliamentary ropes. "The impact from the arrival of people with a kind of sacred fury about them will change the rules of the game," he said.

Perhaps the saddest flop of the campaign was the collapse of the reformist "Act to Halt the Decline" movement, founded by an eccentric economic journalist and aiming to attract liberal votes from the orphans of Berlusconi.

The movement, backed by eminent academic economists and campaigning on a platform of meritocracy and transparency, imploded a few days before the vote when it emerged founder Oscar Giannino had lied about his qualifications.

It seemed tragic that an effort to bring competence and truth to power should end in ridicule, with the unfortunate Giannino justifying his deception as the "Dadaist" act of someone who never had enough money to complete his education.

In Giuseppe Tomasi di Lampedusa's classic novel "The Leopard", the worldly-wise Prince of Salina reacts to a period of revolution in Sicily with the words: "Everything needs to change, so everything can stay the same."

Beppe Grillo's shock troops in parliament will find themselves in the front line of that same conflict, at a time when almost everyone agrees that a sclerotic Italy really does need to change.