New Italian government readies for power

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The rise of a potentially eurosceptic government in Italy and the impact that could have on the stability of Europe has seen the euro fall 3.5 percent this month amid a resurgent dollar.

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. "I simply want to express my regards and support to President Mattarella, who has an essential task, that of his country's institutional and democratic stability, which he is doing with much courage and a great spirit of responsibility", Mr Macron said.

Italian president Sergio Mattarella.

They dropped the plan at the weekend when Mattarella vetoed their choice of a eurosceptic as economy minister and any 11th-hour compromise between the president and the two parties would likely involve the omission of 81-year-old Paolo Savona from their proposed line-up. The populists cried foul and abandoned their joint bid for power.

The euro has slumped this week to its lowest in 10-months, at around US$1.15, after an attempt by two Italian parties to form a government collapsed, fanning fears of a fresh election that could become a de facto referendum on Italy's membership of the euro zone.

But the Cottarelli government seems doomed even before it's created.

Five Star leader, Luigi Di Maio, also weighed into the debate. The Five Star and League deal excludes the far-right Brothers of Italy, which had campaigned with the League, from the team, the party official said.

The latest chapter in the drawn-out political saga sent Italian stocks tumbling more than 2% on Monday and bond yields surging, with Italy's debt risk premium hitting its highest level since November 2013.

'The sooner we vote, the better, ' he said.

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His rejection of Savona and nomination of Carlo Cottarelli as caretaker prime minister sparked angry calls for his impeachment as Savona had the backing of the majority of lawmakers.

Italy's caretaker prime minister was assembling a cabinet lineup on Tuesday, May 29, despite nearly certain rejection by populist parties whose bid for power collapsed at the weekend.

4 March: Inconclusive elections left Italy, the EU's fourth-biggest economy, without a government.

Election promises, however, can be quite different when compared to political reality.

Savona's euroscepticism was enough for Mattarella to reject his appointment and the coalition unraveled as a result.

It's a government unlikely to be approved by the anti-establishment Five Star Movement and the far-right League party, which won the most votes in Italy's March election. Mr Cottarelli is nicknamed "Mr Scissors" for his cuts to public spending in Italy.

After that, Mattarella would dissolve Parliament and set elections for 2019, Cottarelli said.

"Italy is one of our closest allies", White House press secretary Sarah Sanders told us, "and we look forward to continuing to working closely with the new government after it's formed". President Sergio Mattarella has called to his office the former International Monetary Fund official he'd tapped to run a possible interim government of technocrats.

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