Italy's caretaker prime minister was&nbsp;Tuesday&nbsp;assembling a cabinet lineup despite almost certain rejection by the populists whose bid for power collapsed at the weekend.

Fresh elections are now looming as the most likely outcome of the long-running political saga sparked by inconclusive elections in March.

Carlo Cottarelli, a former IMF economist, was tasked with naming a technocrat government&nbsp;on Monday&nbsp;after President Sergio Mattarella nixed a cabinet proposed by the far-right League and anti-establishment Five Star Movement (M5S).

The president, in particular, vetoed their pick for economy minister, fierce eurosceptic Paolo Savona, throwing the eurozone's third-largest economy into a fresh crisis.

Savona has called the euro a "German cage" and said that Italy needs a plan to leave the single currency "if necessary".

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".

Cottarelli said Italy would face new elections "after August" if parliament did not endorse his team, a near certainty given that M5S and the League together hold a majority.

The parties' approved nominee for prime minister, lawyer and political novice Giuseppe Conte, stepped aside following the decision to reject Savona, crashing the proposed government after nearly three months of convoluted horse-trading.

The subsequent nomination of Cottarelli as caretaker prime minister sparked angry calls for Mattarella's impeachment since most lawmakers backed Savona.

League leader Matteo Salvini, a fellow eurosceptic who was Savona's biggest advocate, said the anti-establishment government failed because of pressure from the "powers that be, the markets, Berlin and Paris".

Five Star chief Luigi Di Maio called on party supporters to attend a rally in Rome&nbsp;on Saturday, the anniversary of Italy's transformation into a republic in 1946, after what he called "Italian democracy's darkest night".

The latest chapter in the drawn-out political saga sent Italian stocks tumbling more than two percent and bond yields surging, with Italy's debt risk premium hitting its highest level since November 2013.

Cottarelli, 64, was director of the International Monetary Fund's fiscal affairs department from 2008 to 2013 and became known as "Mr Scissors" for his public spending cuts in Italy.

He said that should his technocrat government win parliamentary approval, it would stay in place until elections at the "start of 2019".

But if parliament fails to approve his government, a new election would be held "after August" -- the most likely outcome given the populists' strength in parliament. Only the centre-left Democratic Party has announced that it would vote in favour.

Salvini and Di Maio furiously denounced the presidential veto, blasting what they called meddling by Germany, debt rating agencies, financial lobbies and even lies from Mattarella's staff.

"Paolo Savona would not have taken us out of the euro. It's a lie invented by Mattarella's advisors," Di Maio said in a live video on Facebook. "The truth is that they don't want us in government."

Elections could benefit Salvini, however, as recent polling by IndexResearch put the League at 22 percent, five points up from their vote share in the&nbsp;March 4&nbsp;ballot.

Under the Italian constitution, the president nominates both the prime minister and, following proposals from the premier, the cabinet.&nbsp;

The most famous example of a president denying a PM's choice was in 1994 when Eugenio Scalfari refused then prime minister Silvio Berlusconi's choice of his own lawyer -- Cesare Previti -- as justice minister.

However, Di Maio said that Mattarella, himself a former constitutional court judge, had "gone beyond his legal prerogatives".

He said an impeachment trial for Mattarella, 76, would be "almost a certainty".

Most analysts, however, say impeachment is only possible in cases of "high treason" or constitutional breaches.

"President Mattarella has only exercised his constitutional powers", said Massimo Luciani, president of the Italian Constitutionalists Association.

Fresh elections are now looming as the most likely outcome of the long-running political saga sparked by inconclusive elections in March

Italy's caretaker prime minister was Tuesday assembling a cabinet lineup despite almost certain rejection by the populists whose bid for power collapsed at the weekend. Fresh elections are now looming as the most likely outcome of the long-running political saga sparked by inconclusive elections in March. Carlo Cottarelli, a former IMF economist, was tasked with naming a technocrat government on Monday after President Sergio Mattarella nixed a cabinet proposed by the far-right League and anti-establishment Five Star Movement (M5S). The president, in particular, vetoed their pick for economy minister, fierce eurosceptic Paolo Savona, throwing the eurozone's third-largest economy into a fresh crisis. Savona has called the euro a "German cage" and said that Italy needs a plan to leave the single currency "if necessary". 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". Cottarelli said Italy would face new elections "after August" if parliament did not endorse his team, a near certainty given that M5S and the League together hold a majority. The parties' approved nominee for prime minister, lawyer and political novice Giuseppe Conte, stepped aside following the decision to reject Savona, crashing the proposed government after nearly three months of convoluted horse-trading. The subsequent nomination of Cottarelli as caretaker prime minister sparked angry calls for Mattarella's impeachment since most lawmakers backed Savona. League leader Matteo Salvini, a fellow eurosceptic who was Savona's biggest advocate, said the anti-establishment government failed because of pressure from the "powers that be, the markets, Berlin and Paris". Five Star chief Luigi Di Maio called on party supporters to attend a rally in Rome on Saturday, the anniversary of Italy's transformation into a republic in 1946, after what he called "Italian democracy's darkest night". The latest chapter in the drawn-out political saga sent Italian stocks tumbling more than two percent and bond yields surging, with Italy's debt risk premium hitting its highest level since November 2013. Cottarelli, 64, was director of the International Monetary Fund's fiscal affairs department from 2008 to 2013 and became known as "Mr Scissors" for his public spending cuts in Italy. He said that should his technocrat government win parliamentary approval, it would stay in place until elections at the "start of 2019". But if parliament fails to approve his government, a new election would be held "after August" -- the most likely outcome given the populists' strength in parliament. Only the centre-left Democratic Party has announced that it would vote in favour. Salvini and Di Maio furiously denounced the presidential veto, blasting what they called meddling by Germany, debt rating agencies, financial lobbies and even lies from Mattarella's staff. "Paolo Savona would not have taken us out of the euro. It's a lie invented by Mattarella's advisors," Di Maio said in a live video on Facebook. "The truth is that they don't want us in government." Elections could benefit Salvini, however, as recent polling by IndexResearch put the League at 22 percent, five points up from their vote share in the March 4 ballot. Under the Italian constitution, the president nominates both the prime minister and, following proposals from the premier, the cabinet. The most famous example of a president denying a PM's choice was in 1994 when Eugenio Scalfari refused then prime minister Silvio Berlusconi's choice of his own lawyer -- Cesare Previti -- as justice minister. However, Di Maio said that Mattarella, himself a former constitutional court judge, had "gone beyond his legal prerogatives". He said an impeachment trial for Mattarella, 76, would be "almost a certainty". Most analysts, however, say impeachment is only possible in cases of "high treason" or constitutional breaches. "President Mattarella has only exercised his constitutional powers", said Massimo Luciani, president of the Italian Constitutionalists Association.

Showdown looms in Italy as caretaker PM assembles team

Italy's president is expected to ask a former International Monetary Fund official on Monday to head a stopgap government amidst political and constitutional turmoil, with early elections looking inevitable.

President Sergio Mattarella has called in Carlo Cottarelli after two anti-establishment parties angrily abandoned their plans to form a coalition in the face of a veto from the head of state over their choice of economy minister.

In a televised address, Mattarella said he had rejected the candidate, 81-year-old eurosceptic economist Paolo Savona, because he had threatened to pull Italy from the single currency.

"The uncertainty over our position has alarmed investors and savers both in Italy and abroad," he 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."

Financial markets tumbled last week on fears the coalition being discussed would unleash a spending splurge and dangerously ramp up Italy's already huge debt, which is equivalent to more than 1.3 times the nation's domestic output.

After Mattarella's move, the euro gained ground, adding 0.6 percent against the Japanese yen and ticking up against other major trading partners as well.

The far-right League and anti-establishment 5-Star Movement, which had spent days drawing up a coalition pact aimed at ending a stalemate following an inconclusive March vote, 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, while 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.

Short-term solution

While he had approved all their other ministerial picks, Mattarella said he had the right to block nominations that could harm the country. He added that the League and 5-Star had refused to put forward any other name for the role.

Shortly afterwards, the president's office summoned Cottarelli, the IMF's former director of fiscal affairs, for a meeting on Monday. Such a call is usually a prelude to being offered a mandate to form a government.

Cottarelli would be a calming choice for the financial markets, but any technocratic administration would likely only be a short-term solution because the majority of parliamentarians have said they would not support such a government.

If, as expected, he fails to win parliamentary backing, Cottarelli would simply ferry Italy to elections that would most likely be held in September or October. It would be the first time in postwar Italian history that such a re-vote was needed.

Polls have suggested that the League, which won 17 percent of the vote in March, would surge in any early ballot, while support for 5-Star remained strong on around 35 percent.

Mainstream centre-left and centre-right parties were seen losing further ground in the face of voter anger over the sluggish economy, high unemployment and rising poverty.

Demanding an immediate ballot, Salvini told followers on Facebook: "It won't be an election, it will be a referendum between Italy and those on the outside who want us to be a servile, enslaved nation on our knees."

Salvini declined, however, to be drawn on whether he would back calls by 5-Star and a far-right ally, the Brothers of Italy, to chase Mattarella out of office.

"We will ask parliament to charge Mattarella with high treason because he has acted under foreign pressure," Brothers of Italy chief Giorgia Meloni said on La7 television channel.

The 5-Star's Di Maio demanded impeachment under article 90 of the constitution. Under that clause, parliament can seek to remove a president if a simple majority of lawmakers votes in favour. The constitutional court would then be called to decide whether to enforce the decision.

The centre-right Forza Italia party and the centre-left Democratic Party (PD) both denounced calls for impeachment, with former PD leader Matteo Renzi saying his party would take to the streets to defend Italy's institutions if needed.

"Today, we need people to say 'no' to those who want to break us apart, who make excuses rather than assuming their responsibilities, who are playing on the anxieties of others," Renzi, a former prime minister, wrote on Facebook.

President Sergio Mattarella has called in Carlo Cottarelli after two anti-establishment parties angrily abandoned their plans to form a coalition in the face of a veto from the head of state over their choice of economy minister

Italy's president is expected to ask a former International Monetary Fund official on Monday to head a stopgap government amidst political and constitutional turmoil, with early elections looking inevitable. President Sergio Mattarella has called in Carlo Cottarelli after two anti-establishment parties angrily abandoned their plans to form a coalition in the face of a veto from the head of state over their choice of economy minister. In a televised address, Mattarella said he had rejected the candidate, 81-year-old eurosceptic economist Paolo Savona, because he had threatened to pull Italy from the single currency. "The uncertainty over our position has alarmed investors and savers both in Italy and abroad," he 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." Financial markets tumbled last week on fears the coalition being discussed would unleash a spending splurge and dangerously ramp up Italy's already huge debt, which is equivalent to more than 1.3 times the nation's domestic output. After Mattarella's move, the euro gained ground, adding 0.6 percent against the Japanese yen and ticking up against other major trading partners as well. The far-right League and anti-establishment 5-Star Movement, which had spent days drawing up a coalition pact aimed at ending a stalemate following an inconclusive March vote, 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, while 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. Short-term solution While he had approved all their other ministerial picks, Mattarella said he had the right to block nominations that could harm the country. He added that the League and 5-Star had refused to put forward any other name for the role. Shortly afterwards, the president's office summoned Cottarelli, the IMF's former director of fiscal affairs, for a meeting on Monday. Such a call is usually a prelude to being offered a mandate to form a government. Cottarelli would be a calming choice for the financial markets, but any technocratic administration would likely only be a short-term solution because the majority of parliamentarians have said they would not support such a government. If, as expected, he fails to win parliamentary backing, Cottarelli would simply ferry Italy to elections that would most likely be held in September or October. It would be the first time in postwar Italian history that such a re-vote was needed. Polls have suggested that the League, which won 17 percent of the vote in March, would surge in any early ballot, while support for 5-Star remained strong on around 35 percent. Mainstream centre-left and centre-right parties were seen losing further ground in the face of voter anger over the sluggish economy, high unemployment and rising poverty. Demanding an immediate ballot, Salvini told followers on Facebook: "It won't be an election, it will be a referendum between Italy and those on the outside who want us to be a servile, enslaved nation on our knees." Salvini declined, however, to be drawn on whether he would back calls by 5-Star and a far-right ally, the Brothers of Italy, to chase Mattarella out of office. "We will ask parliament to charge Mattarella with high treason because he has acted under foreign pressure," Brothers of Italy chief Giorgia Meloni said on La7 television channel. The 5-Star's Di Maio demanded impeachment under article 90 of the constitution. Under that clause, parliament can seek to remove a president if a simple majority of lawmakers votes in favour. The constitutional court would then be called to decide whether to enforce the decision. The centre-right Forza Italia party and the centre-left Democratic Party (PD) both denounced calls for impeachment, with former PD leader Matteo Renzi saying his party would take to the streets to defend Italy's institutions if needed. "Today, we need people to say 'no' to those who want to break us apart, who make excuses rather than assuming their responsibilities, who are playing on the anxieties of others," Renzi, a former prime minister, wrote on Facebook.

Italy's president calls in former IMF official amid political turmoil

Italy's new prime minister-designate Carlo Cottarelli said Monday he would hold an election by the start of 2019 at the latest after being given the mandate to form a government by President Sergio Mattarella.

“I’ll present myself to parliament with a programme which - if it wins the backing of parliament - would include the approval of the 2019 budget. Then parliament would be dissolved with elections at the beginning of 2019,” Cottarelli said shortly after being named interim prime minister by Italy’s president.

“In the absence of (parliament’s) confidence, the government would resign immediately and its main function would be the management of ordinary affairs until elections are held after the month of August,” Cottarelli added. (Reporting by Steve Scherer, editing by Giulia Segreti)

But he added that if, as is likely, his government is not approved by parliament, new elections will be held "after August".

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 eurosceptic 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.

Italy's new prime minister-designate Carlo Cottarelli said he will hold elections after being given the mandate to form a government by President Sergio Mattarella

Italy's new prime minister-designate Carlo Cottarelli said Monday he would hold an election by the start of 2019 at the latest after being given the mandate to form a government by President Sergio Mattarella. “I’ll present myself to parliament with a programme which - if it wins the backing of parliament - would include the approval of the 2019 budget. Then parliament would be dissolved with elections at the beginning of 2019,” Cottarelli said shortly after being named interim prime minister by Italy’s president. “In the absence of (parliament’s) confidence, the government would resign immediately and its main function would be the management of ordinary affairs until elections are held after the month of August,” Cottarelli added. (Reporting by Steve Scherer, editing by Giulia Segreti) But he added that if, as is likely, his government is not approved by parliament, new elections will be held "after August". 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 eurosceptic 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.

Fresh Italy election by 'start of 2019': New PM-designate