Italy's President Tells Populists: Call Me When You're Ready

(Bloomberg) -- Italian President Sergio Mattarella is ready to appoint a new prime minister, but he’s waiting for a signal from the populists who denounced him as an enemy of democracy.

Days after the anti-establishment Five Star Movement and the anti-immigrant League walked away from a bid to form a coalition government, the president wants to find out whether they’re ready to revive it, according to a senior state official. While the head of state stalls, premier-designate Carlo Cottarelli, 63, a former International Monetary Fund executive, is being forced to wait.

The League’s Matteo Salvini canceled nine rallies he had scheduled for Thursday in northern Italy to head back to Rome for talks. After first rejecting the revival of a populist government with Five Star, Salvini said he would consider its call to stop insisting on a euroskeptic economist as finance minister.

“It’s strange to request to move someone from one day to the other because a finance minister isn’t liked by Merkel or the Germans,” Salvini told a rally in Genoa, in a swipe at the German chancellor. All the same, he said he’ll discuss the possibility of another ministerial post with Paolo Savona, the professor vetoed by Mattarella.

Constructive Merkel

Angela Merkel herself said Thursday that she was “open” toward the new Italian government. “I’ll wait for the formation of a new government and then we’ll look at things very constructively and Germany will do everything to find good solutions,” Merkel told reporters during a visit to Lisbon.

While Cottarelli’s technocratic government team is ready, he and Mattarella are allowing more time for the populist parties to seek an agreement, the official said. Mattarella consulted the speakers of both houses of parliament on Thursday as he waited for news.

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Five Star leader Luigi Di Maio and Salvini are using the interim to pressure the president, who upset their bid for power by vetoing Savona. Both are seeking to dictate terms on the next government and on the alternative -- a repeat election -- as they wrestle for dominance.

League Ascendant

While Five Star support has dipped, the League has surged into second place in polls, strengthening Salvini’s hand in any subsequent coalition negotiations. The shifting balance of power also fanned speculation of a rift in the two parties’ approach to governing that extends to the choice of Savona.

“Madhouse Italy,” headlined newspaper Libero on its front page on Thursday. “They’ve all gone crazy.”

Italian bonds climbed for a second day on Thursday as the immediate political turmoil that rattled markets faded. Italy’s 10-year securities are well on the way to retracing Tuesday’s plunge, finding support on the prospect of Five Star-League coalition talks.

Anti-European Union rhetoric has also dimmed, with both parties insisting that they had no plans to ditch the common currency or abandon the EU. Two polls for TV RAI published Thursday found a clear majority in favor of staying in the euro, with just under a quarter of respondents for quitting the single currency.

Even so, Moody’s Investors Service issued a reminder of the political risk by putting Italian banks on review for downgrade.

Elections Loom

Di Maio said Wednesday he wants either a government made up of political figures or another election, according to remarks cited by the Ansa newswire, refusing to back Cottarelli’s proposed interim administration of technocrats. He called earlier for a government led by law professor Giuseppe Conte, the previous populists’ candidate, or an immediate vote.

Salvini has called for early elections as soon as possible “but not at the end of July” because of holidays.

Investors are likely to remain nervous, said Francesco Papadia, a former director-general for market operations at the European Central Bank who’s a senior fellow at research institute Bruegel.

“The basic issue is that the confidence of the markets about Italy remaining in the euro has been shaken,” Papadia told Bloomberg Television’s Francine Lacqua. “Redenomination risk is the issue and until this redenomination risk” ends, “the turmoil will continue,” he said.

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