Italy's president set the country on a path back to fresh elections on Monday, appointing a former International Monetary Fund official as interim prime minister with the task of planning for snap polls and to pass the next budget. The decision to appoint Carlo Cottarelli to form a stopgap administration sets the stage for elections that are likely to be fought over Italy's role in the European Union and the euro zone, a prospect that is rattling global financial markets.
The euro zone's third-largest economy has been seeking a new government since inconclusive March elections, with anti-establishment forces abandoning their efforts to form a ruling coalition at the weekend after a standoff with the president.
President Sergio Mattarella had vetoed the parties' choice of a euro skeptic as economy minister, prompting the Five Star Movement and far-right League party to accuse the president of betraying voters and to drop their plan to take power.
Cottarelli told reporters after his appointment as interim prime minister that elections would be held in the autumn or early next year.
The prospect of fresh elections rattled financial markets, with investors worried the vote could become a de facto referendum on Italy's euro membership. The euro hit a fresh six-month low and yields on Italian government bonds climbed.
The 5-Star Movement is considering campaigning together with the League if the nation goes back to the polls, a 5-star source said. The centre-right Forza Italia party also said it would not vote in favour of a possible Cottarelli government.
In a televised address, Mattarella said he had rejected the coalition's candidate for the crucial economy portfolio, 81-year-old Paolo Savona, because the economist had threatened to pull Italy out of the euro zone.
The uncertainty over our position has alarmed investors and savers both in Italy and abroad, Mattarella said, adding: Membership of the euro is a fundamental choice. If we want to discuss it, then we should do so in a serious fashion.
The League and 5-Star, which had spent days drawing up a coalition pact aimed at ending a stalemate following inconclusive elections in March, responded with fury to Mattarella, accusing him of abusing his office.
5-Star leader Luigi Di Maio called on parliament to impeach the mild-mannered Mattarella. League chief Matteo Salvini threatened mass protests unless snap elections were called.
If there's not the OK of Berlin, Paris or Brussels, a government cannot be formed in Italy. It's madness, and I ask the Italian people to stay close to us because I want to bring democracy back to this country, Salvini told reporters.
However, Salvini later dismissed Di Maio's call. We need to keep cool. Some things cannot be done in the throes of anger...I don't want to talk about impeachment, he told Radio Capital.