Fresh talks to overcome political turmoil in Italy – the EU’s fourth largest economy – are being held.
Stock markets have been hit and Italy’s debt costs have gone up because there is still no government three months after elections.
Prime Minister-designate and technocrat Carlo Cottarelli has met the president.
But there are also reports a snap election might be called, or that two populist parties could try again to form an administration.
Media reports had suggested Mr Cottarelli, an ex-IMF economist, had failed to secure support from major political parties and may not even bother to be sworn in.
President Sergio Mattarella may choose to skip the appointment of a stop-gap government and call elections in July.
On Sunday, Italy’s two populist parties failed to form a coalition cabinet. But unconfirmed reports in Italian media and on Reuters news agency suggested they might have another go.
The prospect of fresh elections and the possibility of Eurosceptic parties strengthening their position has hit financial markets and raised concerns about the eurozone’s stability.
How did we get here?
Italy has been without a government since elections in March because no political group can form a majority.
The two big winners in that election – Five Star and The League – attempted to join forces but abandoned efforts after the president vetoed their choice of finance minister.
Mr Mattarella said he could not appoint the Eurosceptic Paolo Savona to the post, citing concern from investors at home and abroad.
But a Five Star source told Reuters on Wednesday morning that an attempt was being made to find “a point of compromise on another name” for finance minister.
The rare move by the president to veto the choice of finance minister sparked fury from both populist parties, who say they will reject Mr Cottarelli’s nomination in parliament.
How do the populists see it?
After the president blocked Mr Savona’s appointment, Five Star leader Luigi Di Maio urged parliament to impeach the president.
Mr Di Maio later called for peaceful protests and urged his supporters to unite and “make some noise”.
“It is important that we do so all together,” he said.
He said marches and rallies would be organised in Italian cities, including an event in Rome on 2 June – a national holiday celebrating the day the country became a republic in 1946.
Meanwhile The League’s chief Matteo Salvini also criticised the president’s decision, calling for mass protests and accusing Brussels and Germany of meddling.
Although the president’s role is largely ceremonial, he enjoys powers such as appointing heads of government and the ability to dissolve parliament. These have proven vital, as Italy has seen frequent political instability and numerous changes of government.
What could come next?
Current opinion polls suggest that the populist parties are in a strong position should an early vote be called.
It is likely a central issue would be Italy’s relationship with the EU.
But other parties also appear keen to see a fresh poll.
“It would be best to go to elections as quickly as possible, as early as July,” said Andrea Marcucci, who leads the centre-left Democratic Party in the Italian senate.