Anti-establishment leader Luigi Di Maio made a move Wednesday to resurrect a populist coalition that collapsed at the weekend by offering the president a compromise over a controversial pick for economy minister.
Di Maio, head of the Five Star Movement, said that he was prepared to remove staunch eurosceptic Paolo Savona from his proposed economy ministry post as an olive branch to President Sergio Mattarella, whose rejection of the respected 81-year-old financier caused Five Star's coalition with the nationalist League to fall apart.
"Let's find someone of the same character and freedom as the excellent Savona, and professor Savona remains in the cabinet, in another role as minister," Di Maio said in a video on Facebook.
On Monday Mattarella gave ex-IMF economist Carlo Cottarelli a mandate to become caretaker PM, but he has stalled on announcing his own cabinet, with the presidency saying on Wednesday that they were assessing Di Maio's offer with "great interest".
Di Maio's move has also thrown down the gauntlet to League leader Matteo Salvini, Savona's biggest advocate and fellow strong eurosceptic.
"It doesn't depend on us but on the other political force that drafted the contract (joint government programme presented earlier in May) with us. This is a great opportunity," Di Maio added.
The League has so far insisted on new elections as the party's polling ratings soar, but on Wednesday evening news agency AGI reported Salvini as saying that he would discuss the issue with Di Maio.
Di Maio's proposal comes amid political turmoil nearly three months after an inconclusive election, which has raised concerns about the stability of the eurozone.
The uncertainty prompted Moody's to place a dozen Italian banks on negative ratings watch Wednesday, including Intesa Sanpaolo, UniCredit and Mediobanca, having already Friday placed Italy's Baa2 rating on review for a possible downgrade over its political crisis.
Fuel giant Eni, postal service Poste Italiane, public TV network RAI and gas companies Snam and Itaglas were also put under surveillance by Moody's.
Cottarelli, a former IMF economist, left the presidential palace on Wednesday without making a statement after informal talks with Mattarella, not long after Di Maio ended his own brief meeting with the head of state.
- Parliamentary anger -
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.
There is almost no chance of his formation gaining parliamentary approval now that Five Star -- the largest single party in Italy's hung parliament -- have confirmed that they like the League will vote against.
In the meantime factions in both houses had been trying to reach agreement over how long Cottarelli's caretaker mandate would last before new elections are held, with officials from the centre-left Democratic Party calling for the country to go to the polls as early as July.
That could only happen if the parliament was dissolved before Friday.
A more likely scenario is new elections in early October, should Di Maio and Salvini not agree on moving Savona to another ministry.
So far Salvini has made no secret of his hostility to trying again with Mattarella before fresh elections.
"I spent weeks in Rome trying to form a government. It was a futile effort," he retorted while campaigning in Pisa on Tuesday.
Instead, he said he would be ready for new elections "as soon as possible," while rejecting the idea of holding them in July.
Salvini's anti-euro, anti-immigrant party has risen in opinion polls in recent days.
Central to the party's agenda is reform of the EU, spooking markets worldwide and caused a flurry of reaction in Brussels.
- Anti-EU uproar -
On Tuesday, European Budget Commissioner Gunther Oettinger said he hoped Italy's poor economic situation would keep populist parties out of government.
"I can only hope that this will play a role in the election campaign.. sending a signal to voters not to hand power to populists on the right and left," he told German broadcaster Deutsche Welle.
His comments caused uproar in Italy, prompting European officials to scramble to calm anger at the perceived meddling by Brussels.
Financial markets have been on a rollercoaster ride over the past few days, but Milan stocks closed up 2.09 percent on Wednesday, and the bond market strengthened slightly.
But investor doubts over Italy's financial stability were far from eased, with the country struggling under a debt mountain of 2.3 trillion euros.
Central bank chief Ignazio Visco had on Tuesday warned about the impact of the turmoil.
"We are only ever a few steps away from the very serious risk of losing the irreplaceable asset of trust."
Carlo Cottarelli is charged with forming a caretaker government but populists have vowed to block it
Since 1948, Italy has had no less than 61 governments