A Euro Exit Strategy for Italy: No Planning Allowed?

GETTYProfessor Paolo Savona was Lega's choice for the post of Minister of the Economy

GETTYProfessor Paolo Savona was Lega's choice for the post of Minister of the Economy

The president's choice as prime minister, unelected former International Monetary Fund official Carlo Cottarelli, continued to hold talks about forming a caretaker government despite both populist parties saying they would refuse to back him.

Italy's premier-designate said Wednesday that "new possibilities" had emerged to form a government, and that he wanted to give the option a chance given that the prospect of new elections roiled global markets this week.

The 81-year-old Savona remains part of the government, but as minister of European Union Affairs, while the economy portfolio will be in the hands of academic Giovanni Tria.

Di Maio says that Giuseppe Conte could be recalled to form a cabinet, without Savone in the Ministry of the economy, a proposal welcomed by President Mattarella.

Fresh elections seemed like the most likely outcome, however, after it became clear Cottarelli's government would not pass a vote of confidence in parliament.

Markets reacted with relief to the prospect of a political government.

However, Italians could be heading back to the polls as Mr Mattarella said he was considering political party leaders' requests for another election.

Matteo Salvini posted a message on Facebook after meeting with 5-Star leader Luigi Di Maio and announcing they had reached new terms days after their initial coalition agreement was scuttled.

The move led the country's Prime Minister-elect to step down, meaning the collapse of a bid by the populist Five Star Movement and the far-right League to form a government.

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Mattarella's veto of Savona and subsequent nomination of Cottarelli as caretaker prime minister angered lawmakers, most of whom had been ready to back the eurosceptic as economy minister.

Financial markets have calmed amid signs that Italy may avoid imminent elections after President Sergio Mattarella gave two populist parties time to figure out whether they can agree on an alternative to a euroskeptic economy minister.

Conte had been expected to teach at Florence University on Friday morning, but with signals that the 5-Stars and League might get another shot at forming a government, he grabbed a train for Rome.

Salvini, who was Savona's biggest advocate and a fellow eurosceptic, said on Sunday that Italy wasn't a "colony", and that "we won't have Germany tell us what to do".

The two anti-establishment parties, the 5-Star Movement and League, had abandoned plans to jointly take power at the weekend after the president blocked their proposed Cabinet lineup.

An IPSOS poll in the Corriere della Sera newspaper on Wednesday, showed the League on 25 percent support, compared to around 17 percent in March.

Since then, both Di Maio and Salvini have repeatedly stressed they do not want to leave the euro.

However, he added; "I'll go out on a limb and suggest there are a bunch of experienced political operatives in Europe and some neophytes in Italy who might just have got the shock of their lives on how quickly this situation developed and we'll see some backpedalling". There are going to be protests and drama in Italy, with Italians having concerns about their savings as financial institutions put the country's stock market and bonds under pressure, and the government's borrowing costs increase.

He did, however, appear open to an interim administration to govern for a few months, saying an election at the end of July would be "disruptive" for Italian seasonal workers.

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