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Italy yields jump, euro falls as law professor asked to form government

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Italy yields jump, euro falls as law professor asked to form government

Italy's president asked Giuseppe Conte, a law professor nominated for the prime minister role, to form a government made up of a populist coalition that has vowed to shake up the European Union, multiple media outlets reported.

Anti-establishment Five Star Movement's Luigi Di Maio and anti-immigrant League's Matteo Salvini reached a pact to govern the eurozone's third-largest economy, pledging a spending spree and tax cuts in defiance of EU fiscal rules.

"I am conscious of confirming Italy's European and international position," Conte said after meeting President Sergio Mattarella, the Financial Times reported. He added that his government will adhere to the accord reached by Five Star and League, Bloomberg News reported.

Critics believe Conte will have little influence over his coalition partners, Reuters reported.

Italian bonds sold off, with yields on the government's 10-year debt gaining over 8 basis points to 2.411% around 5:31 p.m. central European daylight time. Meanwhile, the euro fell against the U.S. dollar by 0.70% as of 3:31 p.m. ET. The FTSE MIB, the benchmark stock market index for the Borsa Italiana, was down 1.31%.

However, there are concerns around the potential government's ability to approve in full its economic program, which is estimated to cost about €100 billion gross per year, or nearly 6% of GDP, unless backed by savings measures, Barclays said in a research note. Snap elections as early as next year could not be ruled out, according to Barclays.

The premier-designate will now pick ministers and submit to the head of state for approval. The government may be sworn in next week.

Paolo Savona, who has called for a possible euro exit, is the Five Star-League choice for the finance minister role, officials from the parties told Bloomberg News, but Giancarlo Giorgetti, Salvini's top aide and a senior member of parliament, is now the frontrunner to lead the ministry, one person familiar with the talks told the FT. Salvini may be given the minister of interior role, people close to the negotiations told The Wall Street Journal, while Di Maio may become a welfare and economic development minister.

A vote of confidence could be held in both chambers next week, which the coalition government is expected to win.