Italy mulls new gov't solution to calm financial turmoil

ROME (AP) - Italy's premier-designate said Wednesday that "new possibilities" had emerged to form a government based on the outcome of the March 4 vote, and that he wanted to give the option time to mature given the negative market reaction to the prospect of new elections.

Efforts to create a so-called "political" government failed over the weekend after President Sergio Mattarella vetoed an economy minister proposed by the 5-Star Movement and League, the two big vote-getters in March which had come together to form a populist alliance.

After more than two months of failed negotiations, Mattarella then turned to former IMF official Carlo Cottarelli to form a neutral government made up of technocrats to lead Italy until early elections. The prospect of a new vote fueled by anti-establishment and populist outrage sent stock markets plunging along with investor confidence in Europe's third-largest economy.

But on Wednesday, Cottarelli said in a statement that "new possibilities for the birth of a political government had emerged" during his consultations.

"This circumstance, also considering market tensions, has compelled him to wait for further developments," the statement said.

Officials at Mattarella's office said the president agreed with the decision.

Markets relaxed with the news, with the Milan stock exchange maintaining its upward momentum, up 0.8 percent.

It wasn't clear what shape a political government might take.

Economic analyst Lorenzo Codogno said the re-emergence of a possible political government would likely mean tweaks to the 5-Star-League coalition agreement and dropping the euro-skeptic Paolo Savona from the post of economy minister.

Mattarella had vetoed Savona, a former industry minister who has questioned whether Italy should keep the euro, leading to the collapse of the 5-Star-League bid.

"The initiative for a new anti-establishment government ... would have to imply a credible pro-European commitment and a commitment to the Italian Constitution, i.e. the fiscal framework, to have any chance of flying," Codogno said.

The head of the anti-establishment 5-Stars, Luigi Di Maio, had proposed a renewed effort to form an alliance with the right-wing League on Tuesday night, backing off his threat of launching impeachment proceedings against Mattarella and insisting that the two blocs still enjoy a parliamentary majority.

"We're ready to reconsider our position in the sense that if we made a mistake - something I doubt - we'll say so, but now we should respect the will of the people," he said.

League leader Matteo Salvini said he wouldn't get in the way of a solution but made clear that early elections were the only way forward.

"I say this with all possible respect: President Mattarella explain to us show we can get out of the problem," he said. "The sooner we vote the better."

Salvini has long complained that Mattarella never gave the center-right bloc that brought in the highest percentage of votes - 37 percent - a mandate to try to form a government. The 5-Stars, by contrast, got 32 percent.

The center-right alliance grouped the League with ex-Premier Silvio Berlusconi's Forza Italia and the smaller right-wing Brothers of Italy.

Brothers leader Giorgia Meloni renewed her call that Mattarella give the center-right a mandate to try to form a government that can win a parliamentary majority.

League sources told reporters the party "wouldn't block quick solutions to deal with the emergency," but that Italians should vote again "as soon as possible."

Cottarelli had initially said elections could come "after August," but Tuesday's market reaction spurred some lawmakers to propose a late July date, previously unthinkable given it would be hampered by low voter turnout due to Italian summer vacations.

Cottarelli's statement was issued after he consulted briefly with Mattarella on Wednesday, having asked for more time to come up with a proposed list of cabinet ministers. His unexpected delay in forming a Cabinet had fueled concerns about the prospects of his government, given the majority of lawmakers have made it clear they won't vote favorably in mandatory confidence votes in Parliament.

Analyst Codogno said signals the Democratic Party would also vote against a Cottarelli government had dimmed its chances because it would be very short-lived and unable to introduce a mini-budget to help neutralize sales tax hikes. On top of that, any ministers would have to commit not to run in upcoming elections and would have to abandon current jobs, if only for a couple of months.

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Barry contributed from Milan.