Italy has long been the butt of jokes across Europe for its often wobbly governments and frequent general elections. But rarely has the situation been as precarious as it is now following the two-day general elections which finished on Monday.

Official results released by the Interior Ministry on Tuesday evening indicate that Romano Prodi, head of a multi-party center-left coalition, barely defeated current Prime Minister Silvio Berlusconi and his coalition of center-right parties. But even as Prodi moved ahead Wednesday with the process of selecting Cabinet members, Berlusconi is still refusing to concede defeat and is demanding a recount. Only 25,000 votes separate the two candidates with 38 million Italians having gone to the polls. Berlusconi called Prodi's victory claims "irresponsible."

Speaking publicly on Tuesday evening for the first time since the polls closed Monday afternoon, Berlusconi also called into question the validity of votes cast by Italians living overseas -- a group granted seats in both houses of the Italian parliament for the first time this election. Claiming there had been "many irregularities" with the votes from abroad, Berlusconi said: "We do not believe that today, as things stand, someone can claim to have won given the (voting) numbers which display many, many, many murky aspects. I would say too many."

Berlusconi also suggested that, given the political split running straight down the middle of Italy, the country might want to consider a "grand coalition" a la Germany with the center-left and center-right sharing power.

Prodi immediately rejected the proposal, saying "there is no need for a Germany-style coalition because we have the majority to govern." He also called Berlusconi's questioning of the overseas vote "out of line" and said: "We have won after an intense battle, but we have a majority both in the Senate and in the lower house that allows us to govern," according to the Associated Press.

But it's not much of a majority. Prodi's coalition -- made up of a hodgepodge of parties ranging from left-wing communists to centrist social democrats -- won 49.8 percent of the vote to the 49.7 percent garnered by Berlusconi's coalition led by his own Forza Italia party. Due to a new election law pushed through by Berlusconi late last year, the winning party or coalition is guaranteed a 55 percent majority in the lower house of parliament. Voter turnout was 84 percent.

In the Senate, however, Prodi's majority promises to be much more precarious. Official results have him controlling 158 seats in the 315 seat body with Berlusconi controlling 156 seats. One seat is held by an independent who will likely vote with Prodi's coalition.

Prodi's razor thin majority in the Senate, ironically, comes as the result of an election reform pushed through by Berlusconi against heavy opposition from the Prodi camp. For the first time, Italians living overseas were allowed to vote in Italian elections and send representatives to both the Senate and the lower house of parliament. The globe was divided into vast election districts with Berlusconi assuming that Italians living abroad would tend to be politically conservative. In the end, he lost the seat in North America because a number of pro-Berlusconi candidates refused to unite and split the vote allowing a bakery owner from Chicago to win the Senate seat for Prodi. The South American Senate slot went to an independent coalition, costing Berlusconi another valuable seat.

The narrow election result has deeply unsettled economic observers. The Italian economy has grown an average of just 0.6 percent since Berlusconi took the country's top political office in 2001. Prodi's government will not likely be able to push through much needed economic reforms and political infighting could very well take precedence. With such a small majority, even the smallest of parties in Prodi's coalition have the potential to topple the government. Italian stocks fell by 2.18 percent on Tuesday -- the biggest drop since April 2005 according to Bloomberg -- as Prodi's margin of victory appeared ever more tenuous.