Italy renews attempt to form government

Designated Italian PM Carlo Cottarelli is holding last-minute talks on forming government

Italy is searching for a last-minute exit from almost three months of political turmoil on Wednesday, with its biggest party looking to make a renewed attempt to form a coalition government with the right-wing League.

The two anti-establishment parties, the 5-Star Movement and League, had abandoned plans to jointly take power at the weekend after the president blocked their proposed cabinet lineup.

President Sergio Mattarella's veto of 81-year-old eurosceptic Paolo Savona as economy minister appeared to tip the country back towards repeat elections and triggered a dramatic speculative attack on Italian financial markets.

The parties are now trying to find "a point of compromise on another name" for the economy ministry, said the source close to 5-Star, the single-biggest party in the new parliament.

The sense that a resolution of the stalemate might be at hand came from Prime Minister-designate Carlo Cottarelli, who was tasked by the head of state this week to calm the turmoil and plan for repeat elections after the summer.

"New possibilities have emerged for the birth of a political government," Cottarelli was quoted as saying by ANSA news agency, implying that a government headed by politicians rather than technocrats like himself could be in the offing.

"These circumstances, also considering the market tensions, have caused me to wait for further developments."

However, League leader Matteo Salvini, who is surging in opinion polls, appeared to throw cold water on the notion that his party and 5-Star could try again to take power, saying Italy should return to an election as soon as possible.

"The earlier we vote the better because it's the best way to get out of this quagmire and confusion," Salvini told reporters.

He did, however, appear open to an interim administration to govern for a few months, saying an election at the end of July would be "disruptive" for Italian seasonal workers.

He invited Mattarella to make the first move, to "explain to us how we can get out of this situation". A League source said the party would not block any quick political solution that would enable Italy to deal with possible "emergencies".

Italian government bonds, which suffered one of its most dramatic speculative attacks in years on Tuesday, found some support from local investors in trading on Wednesday.

The yield on 10-year bonds edged away from four-year highs and two-year yields, the focus of earlier attacks, also fell.