Italian President Sergio Mattarella asked former International Monetary Fund official Carlo Cottarelli to form a government, with new elections in the eurozone's third-biggest economy more or less a done deal now, multiple media outlets reported.
The yield on Italy's 10-year government bonds rose by more than 4 basis points to 2.596% as of 7:28 a.m. ET, and Italian bonds sold off. Italy's FTSE MIB stock index sank 2.70%. The euro was broadly unchanged around that time.
Mattarella met with Cottarelli as the country's two populist parties, Five Star Movement and the League, abandoned their plans to form a coalition government after the president vetoed their pick for economy minister because Paolo Savona had threatened to pull Italy out of the eurozone.
Cottarelli said he will form a temporary government until new elections are held in the beginning of 2019. However, a Cottarelli-led government is unlikely to receive parliamentary support, meaning new elections could be held after August.
The Five-Star Movement is considering teaming up with the far-right League party for election campaigns, Reuters reported, citing a Five Star source. Matteo Salvini, leader of the League party, said earlier that the party would evaluate if it should continue its alliance with the Five Star Movement in upcoming elections.
