And Italy's new President is...the old one! What happens next?

It took the Italian parliament almost three days and six ballots to elect a new President of the Republic. Well, newish. Incumbent Giorgio Napolitano, who will turn 88 in June, eventually caved in to pressure and agreed to serve a second term. This is unprecedented in Italian history and shows how deep the country's political crisis is. Unable to overcome the stalemate and agree on a new President, the main parties have turned to the old one and begged him to stay.

The good news is that, following Napolitano's re-election, Italy looks set to have a new government in place sooner rather than later. The big news is the new government would undoubtedly include Silvio Berlusconi's party.  

What happens next? 

• Napolitano will take his second oath this afternoon. From that moment, he will re-gain the power to dissolve parliament and call new elections.

• Crucially, Napolitano has said he will "clarify the terms" under which he agreed to stay on in his (second) inauguration speech. The Italian media are speculating on at least two conditions. First, a shorter mandate than the seven years set out in the Italian Constitution - otherwise Re Giorgio would be leaving office at 95. Second, and most important, the formation of a national unity government - backed by the centre-left Democratic Party, Mario Monti's centrist group and Silvio Berlusconi's People of Freedom party.

• The markets seem to take the formation of a new government for granted, with Italy's borrowing costs going down this morning. 

• The latest from the Italian media is that Napolitano will hold a swift round of talks and could give someone the mandate to form the new government as early as tomorrow. There are reportedly two clear favourites to lead the new government. One is Giuliano Amato, 75 years old, who already served twice as Italian Prime Minister. The alternative is Enrico Letta, Pier Luigi Bersani's right hand. We would put our money on Amato, especially since not everyone within Letta's own Democratic Party is enthusiastic about him being appointed as Prime Minister.

• The new government is likely to be a mix of politicians and technocrats. It will focus its efforts on bringing home 5-6 key reforms, based on the proposals put forward by the ten 'wise men' earlier this month. We expect the new government to give priority to political, rather than economic reform. Top of the agenda will be changing the electoral system, along with reforming a pretty dysfunctional institutional structure where the two houses of parliament have perfectly equal powers.

• In any case, the new government is unlikely to remain in charge for the entire five-year parliamentary term.

Winners and losers of Italy's presidential election

Silvio Berlusconi: Big winner

Whether you like him or not, Berlusconi's handling of the presidential election was masterful. He avoided 'hostile' candidates being elected (think of former European Commission President Romano Prodi or left-wing Law Professor Stefano Rodotà, Beppe Grillo's man). Any new government will be dependent on his party's support - exactly what Il Cavaliere wanted since the beginning. The centre-left is in disarray, and his centre-right alliance is now ahead in all opinion polls. No surprise Silvio was so radiant when Napolitano's re-election became official on Saturday evening.

Beppe Grillo: Winner

Beppe Grillo also comes out as a winner, although his victory is likely to become more obvious in the longer term. The Five-Star Movement's presidency candidate Rodotà was a high profile one. Yet, Rodotà was ignored by Bersani's Democratic Party - which never really considered backing him without giving any plausible explanation for doing so. Ideal conditions for Grillo to claim "a clever institutional little coup" was materialising. We would expect a surge in popular support for the Five-Star Movement - though maybe not in the immediate future.

Pier Luigi Bersani: Big loser

With a couple of poor strategic decisions, Bersani has pushed his party to the edge of a break-up and lost his left-wing ally SEL. After kissing goodbye what could be his once in a lifetime opportunity to become Italian Prime Minister, he also had to step down as party leader. And his party looks set to be in government with Berlusconi again - an option Bersani firmly opposed. Bersani burst into tears the moment Napolitano was re-elected. Some of that may just be relief at his ordeal being over.

So this is where we are at, but things are moving quickly. Keep following us on Twitter @OpenEurope or @LondonerVince for real time updates from Italy.