What happens when you put a vote out to the people about whether or not their benefits and public spending should be cut to appeal to international creditors? If you believe in game theory, chances are high that the public will vote against it. The prime minister vote in Italy has taken a turn for the worst and it is dragging down Italian ADRs as a result. It gets worse. This is also hitting the US market, but we also fear that if the vote in Italy does really go against austerity then you have an entire wave of more anti-austerity issues coming from Greece, Portugal, Spain, and elsewhere.

Italian post-election polls are indicating that Italy will have a hung parliament. Reports have former Italian Premier Silvio Berlusconi gaining ground, while earlier readings had Pier Luigi Bersani’s center-left coalition in the lead. The problem is that Italy has to stick to its already-enacted and planned austerity measures and a hung parliament that could sway either way after the results are known could jeopardize that.

Investors and the public probably know it by now, but the real issues is that Italy is too damned big to bail out. We featured this and the statistics behind this on Friday ahead of the elections. There just isn’t enough money to throw into Italy to bail it out. We knew most Americans would not care because they had things the weekend and the Academy Awards to worry about after a long week. Italy matters all over again. Here is how things look in New York ADR and ETF trading:

• iShares MSCI Italy Capped Index (NYSEMKT: EWI) is down 4.8% at $12.32
• Eni SpA (NYSE: E) fell by over 3% to $44.91
• Luxottica Group SpA (NYSE: LUX) is down by 2% at $44.76
• Telecom Italia S.p.A. (NYSE: TI) is down 3.2% at $7.55

Elsewhere in the PIIGS:

Greece – National Bank of Greece SA (NYSE: NBG) is down 5.9% at $1.27; Global X FTSE Greece 20 ETF (NYSEMKT: GREK) is down 6.7% at $17.80.

Portugal – Portugal Telecom, SGPS S.A. (NYSE: PT) is down 2.7% at $5.12.

Spain – Telefonica (NYSE: TEF) is down 1.9% at $12.57; iShares MSCI Spain Capped Index (NYSEMKT: EWP) is down 4% at $29.20; Banco Santander, S.A. (NYSE: SAN) is down 4.6% at $7.41; Banco Bilbao Vizcaya Argentaria, S.A. (NYSE: BBVA) is down 6% at $9.50.

Ireland – The Bank of Ireland (NYSE: IRE) is down 1.3% at $8.06; iShares MSCI Ireland Capped Investable Market Index (NYSEMKT: EIRL) is down 2% at $26.31; and The New Ireland Fund, Inc. (NYSE: IRL) is down 1.5% at $9.82.

The trend these days is to vote against austerity measures. That even applies to a promise to end certain austerity measures that have already started. Maybe Italy will catch on and do what is so popular to do now: look up at the wealthy and try to make them pay more.

Italy matters again and it is very possible that if things start to get tangled up in Italy based upon this election that the spillover is going to lead to a domino-effect where other PIIGS and troubled European nations lose the stability that had been forming in the last 3 or 4 months.

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