(Bloomberg) -- Italy’s populist leaders, incensed by their failed bid for power, began mobilizing for an early election even as premier-designate Carlo Cottarelli puts together a cabinet to present to the head of state.
The disconnect between the pro- and anti-European forces underscores the widening gulf in Italy’s fractured politics that’s unsettling investors. With a general election expected as early as September, the anti-establishment Five Star Movement and the anti-immigrant, euro-skeptic League are heralding an uncertain new period for the euro area’s third-biggest economy.
Italian government debt plummeted on Tuesday, with the spread between Italian and German 10-year bonds surging about 80 basis points to the highest level in just over five years. A new election could take place on a date between Sep. 9 and Oct. 7, newspaper Corriere della Sera reported Tuesday.
With markets in meltdown, Cottarelli, a former International Monetary Fund official picked by President Sergio Mattarella to form an interim administration, could meet the head of state on Tuesday afternoon, according to a senior government official who asked not to be identified. Cottarelli, 63, may serve as both premier and finance minister, the official said.
As Cottarelli labored in an office allocated to him by the Rome parliament, Five Star leader Luigi Di Maio fired broadsides against the president, setting the tone for a virulent campaign. He called for a demonstration in Rome on June 2, a holiday marking the birth of Italy’s post-World War II republic.
“I call on citizens to mobilize, make yourselves heard,” Di Maio said in a Facebook video. Di Maio said he’d hung the Italian flag from the windows of Five Star’s parliamentary offices and urged supporters to do the same.
He was echoed by League head Matteo Salvini, who also called for protests in the country’s piazzas over the weekend. Salvini has yet to say whether he will campaign with Five Star or with a center-right alliance including Silvio Berlusconi’s Forza Italia party.
“The condition for an alliance with Forza Italia is to change European rules, I can’t ally myself with people who tell me that Europe is fine as it is,” Salvini told RAI radio on Tuesday.
The League is credited with 27.5 percent of voting intentions, up from 17.4 percent in the inconclusive March 4 elections, according to an SWG opinion poll carried out on May 23-28. Five Star was down to 29.5 percent from 32.7 percent. Forza Italia was down to 8 percent from 14 percent.
With bond yields surging, the euro was also hit. It was down 0.7 percent as of 10:48 a.m. in Rome. Italian stocks dragged down gauges across Europe on Monday.
In an echo of Europe’s debt crisis, German Chancellor Angela Merkel cited the euro area’s rules when asked about Italy during a conference in Berlin.
“We ought to take a very close look at where we can cooperate with the government, but always remembering that we have principles in the euro area,” she said Monday.
‘March on Rome’
Cottarelli’s cabinet will require a confidence vote in parliament, where most parties are ready to go for a repeat election instead. Both populist parties rejected Cottarelli even before he was tapped to form a government, and Berlusconi said Monday that his party will vote against the former IMF official.
Cottarelli said he will plan for a general election “after August” if his government loses the confidence votes in both houses of parliament.
Five Star and the League have denounced Mattarella, 76, for vetoing euroskeptic economist Paolo Savona as finance minister in the now-foiled populist government. The party leaders say Mattarella ceded to pressure from investors and countries such as Germany when he vetoed Savona, denying them power. Di Maio pledged to seek the president’s impeachment.
Andrea Marcucci, the Senate leader for Italy’s Democratic Party, likened the populists’ plans to Benito Mussolini’s 1922 mass demonstration in Rome, which led to the Fascist dictator’s ascent to power.
“Di Maio and Salvini have thrown down their mask -- they even want to reenact the March on Rome,” Marcucci said on Facebook.
A professor at Bocconi University in Milan, Cottarelli worked at the IMF for more than 25 years. He was nicknamed “Mr. Scissors” for his fiscal rigor.
In 2013 under former Prime Minister Enrico Letta, he delivered a plan for saving more than 30 billion euros ($35 billion) over three years. Only part of the plan was implemented and he complained about resistance from Italy’s bureaucracy.
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