Italy's President Asks Populists: Call Me When You're Ready

(Bloomberg) -- Italian President Sergio Mattarella is ready to appoint a new premier, but he's still waiting on a signal from the populists who denounced him as an enemy of democracy.

Three days after the anti-establishment Five Star Movement and the anti-immigrant League walked away from their last attempt to form a coalition, the president wants to find out whether they're ready to revive their government bid, according to a senior state official. As the head of state stalls, premier-designate Carlo Cottarelli, 63, a former International Monetary Fund executive, is forced to wait in the wings.

As market tensions eased following Tuesday's panic, Mattarella held another round of informal talks in Rome with Cottarelli and then Five Star leader Luigi Di Maio. The upshot is that Cottarelli's technocratic government team is ready, but that he and Mattarella are giving more time for the populist parties to seek an agreement, the official said.

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Di Maio and the League's Matteo Salvini are using the interim to pressure the president, who upset their bid for power by vetoing a euro-skeptic candidate for finance minister. Both are seeking to dictate terms on the next government and on the only alternative -- a repeat election -- as they elbow each other for dominance.

Di Maio said Wednesday he's willing to nominate a different finance minister, while reiterating his party doesn't want Italy to leave the euro area. Shortly afterward, Salvini said he won't change the proposed cabinet lineup to suit the president.

League Ascendant

While Five Star support has dipped, the League has surged into second place in polls, strengthening Salvini's hand in any subsequent coalition negotiations. The shift in the balance of power also fanned speculation of a rift in the two parties' approach to governing that extends to the choice of Paolo Savona, the euro-skeptic professor vetoed by Mattarella.

Senior Five Star lawmaker Laura Castelli signaled that Savona had become a sticking point. “It's astounding that Paolo Savona, a person of great culture and political awareness, has not yet decided to take a step back,” newswire Ansa cited Castelli as saying on Wednesday.

Markets Ease

Even with Italy in limbo, stocks rose along with Treasury yields as investors deemed earlier market reaction to the political turmoil overwrought. Worries about Italy leaving the euro eased with Five Star and the League insisting they had no plans to ditch the common currency or to abandon the European Union. However, Moody's Investors Service issued a reminder of the political risk by putting Italian banks on review for downgrade.

“The Italian crisis is anything but resolved and the scenario appears to be ever-more confused,” said the Vatican newspaper L'Osservatore Romano in a rare comment on Italian politics on Wednesday.

Di Maio said on Wednesday he wants either a government made up of political figures, or elections, according to remarks cited by Ansa, refusing to back Cottarelli's proposed interim administration of technocrats. He called earlier for a government led by law professor Giuseppe Conte, the previous populists' candidate, or an immediate vote.

‘Redenomination Risk'

Salvini, who has been blowing hot and cold on reviving the populist government project, told a rally in Genoa in northern Italy: “If it's wanted, there's a government contract with a team which is ready. We were ready to start last week and we weren't allowed to.” Earlier, he dismissed a Five Star offer to form a populist government, calling instead for early elections as soon as possible “but not at the end of July” because of holidays.

Francesco Papadia, a former director-general for market operations at the European Central Bank who's a senior fellow at research institute Bruegel, said he expects investors to remain nervous.

“The basic issue is that the confidence of the markets about Italy remaining in the euro has been shaken,” Papadia told Bloomberg Television's Francine Lacqua. “Redenomination risk is the issue and until this redenomination risk” ends, “the turmoil will continue,” he said.

--With assistance from Chiara Albanese, Lorenzo Totaro, Tommaso Ebhardt and Alessandro Speciale.

To contact the reporter on this story: John Follain in Rome at jfollain2@bloomberg.net

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net, Alessandra Migliaccio

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