Italy renews attempt to form coalition and end turmoil: party source

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ROME (Reuters) – Italy searched 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, a source said.

Former senior International Monetary Fund (IMF) official Carlo Cottarelli speaks to the media after a meeting with Italy’s President Sergio Mattarella at the Quirinal Palace in Rome, Italy, May 28, 2018. REUTERS/Tony Gentile

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 toward 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.

However, League leader Matteo Salvini, who is surging in opinion polls, appeared to throw cold water on that idea, 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 said, though, that an election at the end of July would be “disruptive” for Italian seasonal workers in particular. He invited Mattarella to make the first move, saying he should “explain to us how we can get out of this situation”.

Despite the softer tone from 5-Star, a top adviser to Salvini said a breakthrough with the president looked difficult because the League was not prepared to abandon Savona.

“If it wasn’t possible three days ago, then it’s hard to see why it would be now,” said Giancarlo Giorgetti.

A surprise breakthrough between the president and 5-Star/League would ease uncertainty but still usher in a coalition planning to ramp up spending in the heavily indebted nation and push for changes to European Union and euro-zone fiscal rules.

FILE PHOTO: Former senior International Monetary Fund (IMF) official Carlo Cottarelli speaks to the media after a meeting with Italy’s President Sergio Mattarella at the Quirinal Palace in Rome, Italy, May 28, 2018. REUTERS/Tony Gentile/File Photo

In the event of continued stalemate, Italy will go back to elections, with most major parties calling for the president to dissolve parliament and hold a vote as soon as July 29.

A new opinion poll showed the League, which argues that fiscal rules governing the euro zone are “enslaving” Italians, would boost its share of the vote to a quarter, from around 17 percent on March 4.

The IPSOS poll, in the Corriere della Sera newspaper, showed support for the League’s would-be coalition partner, the 5-Star Movement, steady at about 32.6 percent — implying a much more comfortable majority if the pair were to try again to govern.

That prospect has rocked financial markets, with the euro sinking to multi-month lows on fears that snap elections would lead to a eurosceptic government in Rome.

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

Shares in Italian banks also recovered a little ground after five straight days of losses.

Additional reporting by Gavin Jones, Giselda Vagnoni, Steve Jewkes, Dhara Ranasinghe, Helen Reid, Sujata Rao, Marc Jones and Michael Nienaber; Writing by Mark Bendeich; Editing by Richard Balmforth

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