Italy has edged toward its first populist government as the president convened the leaders of the anti-establishment 5-Star Movement and the right-wing League in what could be the final coalition consultation.
The summit comes 11 weeks after elections left the country with a hung parliament.
The prospect of a 5-Star/League government weighed heavily on markets and on Italy’s European allies.
The cost of borrowing to fund Italy’s persistently high public debt rose to the highest levels in nine months and the Milan stock market was trading down 2%.
France’s economics minister has already sounded an alarm that the eurozone’s financial stability could be threatened if a populist government blows Italy’s deficit commitments.
Bruno Le Maire said: “If the new government takes the risk of not respecting its commitments on debt, the deficit, but also on consolidation of banks, then the entire financial stability of the eurozone will be threatened.”
The leader of the 5-Stars, Luigi Di Maio, and League leader Matteo Salvini indicated an agreement on Sunday on a candidate for the new premier to present to President Sergio Mattarella, who must grant his approval and agree on a cabinet list before a parliamentary confidence vote.
Mr Salvini said that neither he nor Mr Di Maio would be the premier, an apparent move to keep the fledgling coalition on an even keel.
Most worrying to financial markets is the two parties’ platform, unveiled last week. It includes a rollback on pension reform, a minimum salary for struggling Italians and the introduction of a flat tax, which will contribute to a large fiscal expansion that economists and EU policymakers worry will increase the country’s debt burden.
The programme also introduces a tougher stance on deporting migrants and calls for a better dialogue with Russia on economic and foreign policy matters while maintaining its trans-Atlantic alliance.
Mr Di Maio assured his voters that the government would find the money to pay for social programmes and tax cuts both through investments and in upcoming negotiations in Brussels on the European Union’s seven-year budget cycle, but neither the markets nor European partners have been assuaged.
A 5-Star/League government would have a very thin majority of just over 50% of parliamentary seats. Mr Salvini ran in the elections as part of a right-wing coalition including Silvio Berlusconi’s Forza Italia, but Mr Berlusconi opposes the 5-Stars and says he will not support them in a confidence vote.