Italy's president set to appoint technocrat PM amid political chaos

Italys president was set to appoint a pro-austerity economist as prime minister on Monday as the country lurched into fresh political chaos after a bid by two populist parties to form a government collapsed.

Carlo Cottarelli, an economist formerly with the International Monetary Fund, arrived at the presidential Quirinal palace on Monday morning, with a temporary technocrat government on the table as Italy faces the strong possibility of new elections in autumn.

The crisis was sparked when President Sergio Mattarella vetoed the nomination of fierce eurosceptic Paolo Savona as economy minister, enraging the far-right League and leading to the anti-establishment Five Star Movement calling for his impeachment.

The two parties' approved nominee for prime minister, lawyer and political novice Giuseppe Conte, stepped aside over the decision, exacerbating the political turmoil nearly three months after March's inconclusive general election.

Mattarella said he had accepted every proposed minister except Savona, who has called the euro a "German cage" and has said that Italy needs a plan to leave the single currency "if necessary".

The leaders of Five Star and the League, Luigi Di Maio and Matteo Salvini, furiously denounced the veto, decrying what they called meddling by Germany, debt ratings agencies and financial lobbies.

Cottarelli, 64, was director of the IMF's fiscal affairs department from 2008 to 2013 and became known as "Mr Scissors" for making cuts to public spending in Italy.

European stock markets and the euro received an early boost Monday after the veto of the fiercely eurosceptic economy minister, which potentially averted a eurozone crisis.

But Milan's stock exchange proved volatile, turning to losses in mid-morning trading, in a sign that early positivity may not last.

Cottarelli will struggle to gain the approval of parliament with Five Star and the League commanding a majority in both houses.

"They've replaced a government with a majority with one that won't obtain one," said Di Maio.

'First impeachment, then polls'

A livid Di Maio later called for the president to be impeached.

"I hope that we can give the floor to Italians as soon as possible, but first we need to clear things up. First the impeachment of Mattarella... then to the polls."

"Why don't we just say that in this country it's pointless that we vote, as the ratings agencies, financial lobbies decide the governments."

Salvini, who was Savona's biggest advocate and a fellow eurosceptic, declared that Italy was not a "colony", and that "we won't have Germany tell us what to do".

On Monday, Salvini threatened to break his alliance with the League's pre-election rightwing coalition partner Silvio Berlusconi should the media mogul's Forza Italia party vote for the government.

The 81-year-old billionaire former prime minister released a statement on Sunday in which he praised Mattarella's efforts to "safeguard this country's families and businesses".

His partnership with Salvini, which saw them part of a grouping that won the most votes in the March vote, is still in place despite the League's attempt to form a government with Five Star, as Forza Italia and the League hold local and regional administrations together.

"Berlusconi's statement yesterday was the same sort of thing that could have been written by (former centre-left prime minister Matteo) Renzi," Salvini told Radio Capitale.

French far-right leader Marine Le Pen joined in their outrage on Monday, accusing the president of a "coup d'etat" and saying the "European Union and financial markets are again confiscating democracy".

'Diktats'

A former judge at Italy's constitutional court, Mattarella has refused to bow to what he saw as "diktats" from the two parties that he considered contrary to the country's interests.

He had watched for weeks as Five Star and the League set about trying to strike an alliance that would give Italy's hung parliament a majority.

Mattarella said he has done "everything possible" to aid the formation of a government, but that an openly eurosceptic economy minister ran against the parties' joint promise to simply "change Europe for the better from an Italian point of view".

"I asked for the (economy) ministry an authoritative person from the parliamentary majority who is consistent with the government programme... who isn't seen as a supporter of a line that could probably, or even inevitably, provoke Italy's exit from the euro," Mattarella said.

The president said Conte refused to support "any other solution" and then, faced with Mattarella's refusal to approve the choice of political novice Savona, 53, gave up his mandate to be prime minister.