ROME (AFP, REUTERS) - Italy saw no end in sight to its political turmoil on Tuesday (May 29) as the caretaker prime minister ended talks on forming a government without unveiling his cabinet line-up, following the collapse of a populist coalition's bid to govern.
Italy might have to return to the polls as early as July after Carlo Cottarelli failed to secure support from major political parties for even a stop-gap government as markets tumbled on the growing political uncertainty.
Mr Cottarelli had promised to deliver the list "as soon as possible" in a bid to end the chaos that has raised fears for the stability of eurozone.
But the economist discreetly left the presidential palace after a brief meeting with President Sergio Mattarella on Tuesday afternoon without making any statement. Shortly afterwards Giovanni Grasso, a spokesman for the president said Mr Cottarelli "has informed the head of state of the situation and... both will meet again tomorrow morning."
Mr Mattarella on Sunday blocked a cabinet proposed by the anti-immigrant League and their allies in the Five Star Movement (M5S). Mr Mattarella vetoed the League-Five Star pick for economy minister, eurosceptic Paolo Savona. The populists cried foul and abandoned their joint bid for power. That left Mr Cottarelli, a former IMF economist, tasked with naming a technocrat government.
Five Star and the League, who hold a majority in both houses of parliament, have vowed to reject Mr Cottarelli's proposed technocrat government.
New elections are now considered the most likely outcome of the political saga, sparked by an inconclusive poll in March. On Tuesday, Five Star leader Luigi Di Maio called for a return to the polls "as soon as possible", a view echoed by others.
"It would be best to go to elections as quickly as possible, as early as July," said Andrea Marcucci, senate leader for the centre-left Democratic Party.
Italian media said the elections could be scheduled for as early as July.
Elections could benefit Matteo Salvini, the fiery leader of the League, as recent polling by IndexResearch put the League at 22 per cent, five points up from its vote share in the March 4 ballot. The 5-Star Movement and the League were the biggest winners from the March election.
Failure to form a new government and talk of a new election caused the biggest Italian market selloff in years. Investor fears the election would deliver an even stronger mandate for anti-establishment, eurosceptic politicians, casting doubt on Italy's future in the euro zone.
Italy's 10-year bond yields surged to over 300 basis points higher than Germany's - a sign of surging investor doubts over Italy's financial stability.
The euro also hit multi-month lows, as credit rating agency Moody's signalled a possible downgrade for Italy if the next government failed to address its debt burden.
Central bank Governor Ignazio Visco said Italy "must never forget that we are only ever a few short steps away from the very serious risk of losing the irreplaceable asset of trust," but there were "no justifications" for the market turmoil.
Saxo Bank currency strategist John Hardy said European Central Bank President Mario Draghi might soon be required to intervene to calm markets, as he did during the euro zone debt crisis in 2012 when he promised to do "whatever it takes".
Euro zone money markets had been betting on the ECB raising interest rates from ultra-low levels mid-next year. But with economic growth slowing and worries about Italy, they are now pricing in just a 30 percent chance of a modest 10 basis point rise in June 2019.
Mr Cottarelli, 64, was director of the IMF's fiscal affairs department from 2008 to 2013 and became known as "Mr Scissors" for his public spending cuts in Italy.
He said that should his technocrat government win parliamentary approval, it would stay in place until elections at the "start of 2019".
But if parliament fails to approve his government, a new election would be held. Only the centre-left Democratic Party has announced that it would vote in favour of the caretaker government.
Other euro zone countries are concerned about the currency bloc's third-largest economy. French President Emmanuel Macron defended what he called Mattarella's courage and German Chancellor Angela Merkel spoke of the need to obey rules governing the euro.
But top EU officials were quick to play down a comment from Germany's European commissioner, Guenther Oettinger, who said he hoped the market turmoil would be "a signal (to Italians) not to hand governing responsibilities to the populists".
Commission President Jean-Claude Juncker released a statement saying: "Italy's fate does not lie in the hands of the financial markets," and Donald Tusk, the chairman of EU leaders' summits, called on EU institutions to "respect the voters ... We are there to serve them, not to lecture them."
The election campaign is likely to centre on Italy's relationship with the European Union and in particular the budget restraints imposed on members of the euro zone.
A poll by SWG showed support for the League had jumped to 27.5 percent, up about 10 points from the March 4 elections. With support for 5-Star falling about three points to 29.5 percent.