Italy in turmoil as PM yet to name government

Italy's caretaker prime minister is expected to unveil his cabinet line up today in a bid to end the chaos that has raised fears for the stability of eurozone after the populist coalition's bid to govern collapsed.

Carlo Cottarelli had promised to deliver the list "as soon as possible" but the economist discreetly left the presidential palace after a brief meeting with President Sergio Mattarella yesterday afternoon without making any statement.

Shortly afterwards Giovanni Grasso, a spokesman for the president said Cottarelli "has informed the head of state of the situation and... both will meet again tomorrow (Wednesday) morning." Mattarella on Sunday blocked a cabinet proposed by the anti-immigrant League and their allies in the Five Star Movement (M5S).

Mattarella vetoed the League-Five Star pick for economy minister, eurosceptic Paolo Savona. The populists cried foul and abandoned their joint bid for power.

That left Cottarelli, a former IMF economist known as "Mr Scissors", tasked with naming a technocrat government.

Five Star and the League, who hold a majority in both houses of parliament, have vowed to reject Cottarelli's proposed technocrat government. New elections are now considered the most likely outcome of the political saga, sparked by an inconclusive poll in March.

Yesterday, Five Star leader Luigi Di Maio called for a return to the polls "as soon as possible". Italian media said the elections could be scheduled for as early as July. The uncertainty in the country and the fear that the Five Star Movement and the eurosceptic League could win even more votes if a fresh vote is held appeared to spook the financial markets.

Italy's 10-year bond yields surged to over 300 basis points higher than Germany's -- a sign of surging investor doubts over Italy's financial stability. The Milan stock exchange plunged more than three percent yesterday morning before closing down -2.65 percent.

Global markets have been sent into a tailspin as a political crisis unfolding in Rome has thrust the stability of the eurozone and European Union back on to the agenda.

A senior US Treasury official said it would be better for Italy to resolve its current political crisis while staying within the eurozone.

Mattarella's veto and subsequent nomination of Cottarelli as caretaker prime minister sparked angry calls for the president's impeachment, since most lawmakers backed Savona.

Mattarella said that an openly eurosceptic economy minister was counter to the parties' joint promise to simply "change Europe for the better from an Italian point of view".

League leader Matteo Salvini, a fellow eurosceptic who was Savona's biggest advocate, said his side's joint plan for a government failed because of pressure from the "powers-that-be, the markets, Berlin and Paris".

"It was a big mistake to say no to a government which had a majority, a programme and a list of ministers," said Salvini. He added that the future elections would be a vote pitting "people and real life against the political old guard."