Italy's Prime Minister-designate Giuseppe Conte gave up on efforts to form a government on Sunday after the president apparently rejected his pick for the economy ministry, increasing the likelihood of another election this year.
He has been given a mandate to form a government.
President Mattarella announced his choice Monday, having diluted the deal between two Eurosceptic parties who had collective majority in the March elections and had since dedicated themselves to forming a new government. In the meantime, Mattarella has reportedly asked a former International Monetary Fund (IMF) official, Carlo Cottarelli, to discuss the formation of an interim, technocratic government.
"Good luck to anyone" who next gets tapped by Mattarella to be premier-designate, Giuseppe Conte, a law professor at the University of Florence, told reporter.
The move enraged the anti-establishment Five Star Movement and far-right League, and prompted their prime minister-elect to step aside.
The president may put together a caretaker government to steer the country to fresh elections in the fall, according to media political observers.
Italy's president was accused last night of pandering to Brussels and the markets after he vetoed western Europe's first populist government.
When the Five Star/League coalition refused to budge on their support, Mattarella used his presidential powers to reject Savona's appointment as a minister.
"In a democracy, if we are still in democracy, there's only one thing to do, let the Italians have their say", he told supporters in a speech in central Italy.
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He would be a calming choice for the financial markets, who were spooked by Savona's criticism of the euro and German economic policy.
Cinque Stelle leader Luigi di Maio described the situation as "an institutional clash without precedent" and said he will seek Mattarella's impeachment.
The 5-Star's Di Maio also demanded impeachment under article 90 of the constitution.
Cottarelli said in such a case, the government's principal job "would be the ordinary administration of government and to accompany the country to elections after the month of August".
But the stance to block eurosceptic economy minister Paolo Savona boosted sentiment towards the currency.
The euro gained ground on the news, adding 0.4 percent against the USA dollar on Monday morning and ticking up against most other major trading partners as well. 5-Star had waged an independent campaign at inconclusive March 4 elections, while the League campaigned as part of a coalition of right-wing parties.
In a statement late Sunday, the three-time premier took a much more measured tone about the collapse of the 5-Star-League experiment, refusing to criticize Mattarella.
US S&P500 mini futures rose 0.3 per cent, but market holidays in the world's two biggest financial centres - London and NY - could make trading slow and illiquid for the day.