It's official - Italian voters have done a wrong thing.

The results of the general election have left three political parties in deadlock: the comedian-lead Five Star Movement, formed just three years ago by blogger Beppe Grillo, Silvio Berlusconi on the centre right, and Pier Luigi Bersani on the centre left.

The surprise entry was of course the Five Star Movement - a sign of just how strongly the nation rejects austerity policies. Now there's going to have to be a second election within the next few months, and meanwhile we have uncertainty. Markets don't like uncertainty.

Here's how far the euro just fell against the pound (via Bloomberg):

Italy's FTSE MIB index is down 4.7 per cent on the news, while London's FTSE is down 1.5 per cent.

IG's chief market strategist Chris Weston explains the problem:

We simply don’t know the state of play with Italian politics, and markets find sellers in times of instability.

The President will take centre stage now and either form a ‘grand coalition’, although this seems unlikely. It has been speculated that Mr Bersani may look to team up with Beppe Grillo’s Five Star movement (again unlikely), or ultimately fresh elections will be called down the track.

This is a story of anti-austerity and one where most hadn’t expected the anti-austerity / anti-European parties to do anywhere near as well as they have. The Italian voter has spoken out and this has thrown up political instability as perhaps the number one issue facing Europe in 2013.

Steven Englander of Citi writes:

This could become a major problem if it proves contagious. The feel-good from the runup in Italian asset markets was not enough to offset the feel-bad from austerity, low growth and unemployment. If all it would take to fix this was an ECB rate cut, they would do so immediately, but euro zone politicians may need to ease fiscal constraints and find ways to quickly stimulate growth. Elections are more problematic than market scares or sentiment shifts as they can't be undone by printing money. Still the outcome does not seem so dire that a bit of growth and ECB flexibility could not turn it around.

And here's SocGen's Sebastien Galy:

EUR crosses came under pressure as Italian polls suggest a split vote with each chamber held potentially by a different party, whereas laws need to be approved by both chambers. Rising FX volatility has not yet mutated into a full blown correction, though the correction is deep. USD/JPY remains a buy on the 90 handle and EUR/USD should hopefully hold above 1.30. Nonetheless, gyrations in FX and now in equities are increasingly severe. Such tendency for sharp corrections seen as opportunities to buy on dips are similar to the market behavior in 2007 as we advanced every deeper into the subprime crisis. The next key test will be the sequester decision in the US which does not seem to be going in an encouraging correction.

So there's a split vote within each chamber. The split vote within the lower chamber, FTAlphaville explains, isn't so bad, because at least someone will win, but the way that the seats are allocated in the Senate means that we could end up with a coalition. (Both chambers have equal power). Any coalition is unlikely to last very long though, at least according to this guy and this guy. Looks like instability will be the word of the day for many days to come.