EU's Barroso fully confident in Italy

European Commission head Jose Manuel Barroso said Wednesday he had full confidence that Italy will prove to be politically stable, in its own interests and those of Europe, after inconclusive polls.

"Barroso expressed his full confidence that Italy, as one of Europe's and the world's biggest economies, will ensure the conditions of political stability in the interest of Italy and Europe as a whole," a joint statement said after he met outgoing Italian Prime Minister Mario Monti in Brussels.

The political impasse in Italy deepened on Wednesday as the main leftist party, which just edged to victory in the lower house of parliament, and a new anti-establishment party exchanged barbs and dampened hopes a new government could be formed any time soon.

The vote was widely seen as a repudiation of Monti, who came in well down the field, over his austerity policies which have seen the Italian economy slump and unemployment rise sharply.

Former Italian premier Silvio Berlusconi came a very close second in the polls largely on a platform of reversing Monti's policies, especially unpopular tax hikes introduced to help stabilise the country's strained public finances.

The Barroso-Monti statement said the "Commission believes that Italy is undergoing an ambitious reform process that, if fully implemented, will significantly raise its growth potential.

"Italy has also put the public finances on a sounder footing which is an essential condition to ensure growth," it said.

Barroso stressed that the "Commission remains committed to assist Italy and all the other EU member states in this challenge," it added.

The statement said Monti was in Brussels to help prepare an upcoming EU leaders summit next month which will focus on ways to boost growth and create badly needed jobs across the bloc which remains stuck in the doldrums.

"Determined action at European and national levels is needed to ensure that the return of confidence into the euro area is sustained," it said, noting that leaders must also take note of the social tensions caused by the slump.

After markets panicked on Tuesday, investors were more measured on Wednesday but nerves remain on fears Italy could reverse reforms and austerity following an election that was seen as crucial for the future of the eurozone.