Populist parties win tacit Berlusconi OK to form govt

Di Maio also stated that his party would refuse to back a caretaker government and that if no majority emerged the country must "return to the polls", a stance he shares with League leader Salvini.

The political stalemate brought the prospect of yet another election, as soon as July, but in the past several days Five Star and the League rejoined in a last-ditch effort to prevent another vote. They on Thursday asked Mattarella to give them until early next week.

The obstacle was removed late Wednesday, when Berlusconi agreed to be excluded from a League-M5S deal, while stating that this would not end Forza Italia party's historic alliance with the League. And he said the current caretaker government of Premier Paolo Gentiloni had run its course after the Democrats lost their majority. The victor of the 2013 election, Pier Luigi Bersani, failed to forge a majority and was supplanted by Democratic Party colleague Letta. Forza is led by Silvio Berlusconi, the former prime minister who remains an influential figure despite both tax and sexual misconduct scandals.

After Mattarella names a prime minister seen as being outside any party structure, that person then applies the same standard in compiling a list of potential cabinet members.

"I cannot hide the joy and happiness as we can finally start dealing with Italy's problems", M5S?leader Luigi Di Maio said in a Facebook video, after a meeting with his League counterpart, Matteo Salvini.

"In this case we certainly can't give a confidence vote, but we will evaluate in a serene and unprejudiced way the operation of a government that might come about", he said.

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An alliance between Five Star and the League has always been considered the most destabilising outcome of the election because both parties have attacked European Union fiscal rules, banking regulations, trade deals and sanctions against Russian Federation.

There will probably be another meeting between the party delegations to discuss policies on Saturday, Bonafede said.

The League-led center-right coalition received 37 percent of the vote, and the 5-Stars 32 percent.

The payback for Berlusconi was unclear, amid speculation that he would seek guarantees that the new government would not push laws hampering his business empire, or deepen his legal woes.

Italy has one of the highest debt-to-GDP ratios in Europe at 132pc.

Carlo Franchini, head of institutional clients at Italy's Banca Ifigest, said: "Markets were too optimistic about elections and were not expecting there could have been elections so early". Mr Mattarella wants to hold off a general election for the rest of the year, because the warm weather in the summer could depress turnout and the autumn date would jeopardise the passage of the 2019 budget. And nobody's fully forgotten Five Star's past talk of a referendum on leaving the euro. A March 4 parliamentary election that laid bare Italians' disgust with traditional politics, anxiety over the economy and opposition to migrants. Until recently, bonds and stocks had shrugged off the political turmoil, with investors focusing instead on improving economic growth and continued support from the European Central Bank's unprecedented package of easing measures.

  • Adam Floyd