President readies Italy for snap polls to be fought on EU, euro

ROME,  (Reuters) – Italy’s president set the country on a path to fresh elections yesterday, appointing a former International Monetary Fund official as interim prime minister with the task of planning for snap polls and passing the next budget.

The decision to appoint Carlo Cottarelli to form a stopgap administration sets the stage for elections that are likely to be fought over Italy’s role in the European Union and the euro zone, a prospect that is rattling global financial markets.

The euro zone’s third-largest economy has been seeking a new government since inconclusive March elections, with anti-establishment forces abandoning efforts to form a coalition at the weekend after a standoff with the head of state.

President Sergio Mattarella vetoed the parties’ choice of a eurosceptic as economy minister, prompting the 5-Star Movement and far-right League party to accuse him of betraying voters.

Both parties dropped drop their plan to take power, switched to campaign mode, and 5-Star called for street protests against the president’s rejection of their nominee, 81-year-old Paolo Savona, who has argued for Italy to quit the euro zone.

Cottarelli told reporters after his appointment that elections would be held in the autumn or early next year. He also tried to reassure investors on the Italian economy.

“Speaking as an economist, in the past few days tensions on the financial markets have increased,” said Cottarelli, who had served as a cost-cutting tsar to a previous government.

“Nonetheless the Italian economy is still growing and the public accounts remain under control.”

The prospect of fresh elections raised fears among investors that the vote could become a de facto referendum on Italy’s euro membership. The euro touched a fresh six-month low and yields on Italian debt climbed, increasing the extra borrowing costs or spread that Italy pays in comparison with Germany.

Already Italian politicians are pondering election tactics.

A 5-Star source said it was considering an election alliance with the League. In March, 5-Star ran its own campaign while the League campaigned as part of a right-wing coalition with the party of former prime minister Silvio Berlusconi.

“This is not a democracy, this doesn’t respect the popular vote,” League chief Matteo Salvini said after Cottarelli accepted his appointment by the president.

Salvini characterised the move as the death throes of a political establishment intent on keeping Italy “enslaved”, and afraid of the reaction of financial markets.

“The next elections will be a plebiscite — the population and real life against old political castes and the ‘lords of the spread’,” he said.

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