Italian President appoints interim Prime Minister before new elections

Italy’s faith in the eurozone is set to be tested in fresh elections in the autumn after the president, Sergio Mattarella, installed an interim prime minister to lead a new government after a bitter falling out with the country’s populist parties.

The political crisis that has engulfed Rome threatens to bring about another bitter battle over the future of the EU, two years after the UK voted for Brexit. The uncertainty promped a selloff on Italian markets on Monday.

Mattarella, who as president has the power to nominate the head of government and ministers, asked Carlo Cottarelli, a former International Monetary Fund official, to become interim PM after refusing to accept the nomination of Paolo Savona, a Eurosceptic, for the role of finance minister.

Mattarella said appointing Savona, 81, who has called Italy’s entry into the euro a “historic mistake”, would have risked the confidence of foreign investors and destabilising the country.

Savona had been put forward for the role by the Five Star Movement (M5S) and the League, which had been attempting to form a government. The rejection on Sunday night prompted the resignation of Giuseppe Conte, the two parties’ choice to serve as prime minister.

The parties’ leaders, Luigi Di Maio of the M5S and Matteo Salvini of the League, expressed outrage at Mattarella’s intervention and, in an extraordinary move, called for a mass mobilisation against the president on 2 June. Di Maio and others called for Mattarella’s impeachment, a move almost unheard of in Italy, but he later backed off from the threat.

“I call citizens to mobilise, make yourselves heard, it’s important that you do it right now. We will organise peaceful and symbolic demonstrations,” Di Maio said. He also called on Italians to drape the Italian flag outside their windows in protest against Mattarella.

Emmanuel Macron, the French president, praised Mattarella for showing “great spirit of responsibility” in protecting Italy’s “institutional and democratic stability”. Germany’s Angela Merkel said she would be willing to work with any coalition government in Italy, but economic policy had to be dictated by eurozone rules.

Asked whether she was concerned, Merkel said: “Look, when there were elections in Greece and Alexis Tsipras was made premier, there were many questions on the table. We spoke with each other over many, many nights, but together we achieved something. But we have to do that task, since Italy is an important member of the EU,” she said.

As high-profile figures in Italy, including former newspaper editors, rallied to Mattarella’s defence, there was a mood of shock and disbelief in Rome. Privately, some analysts who were supportive of Mattarella said it was far from clear whether he had made the right moves and whether his actions would inflame populist sentiment at a fragile moment in Italian history.

In brief remarks on Monday, Cottarelli sought to play down the political crisis. “The Italian economy is still growing and public finances are under control,” he said. “Dialogue with the EU to defend our interests is essential and we can do better but it has to be constructive.”

At the heart of the fight was Mattarella’s contention that Italy would have sent the wrong message by appointing an anti-euro finance minister. Salvini countered that claim, suggesting he had never called for an exit from the euro, despite having long campaigned for Italy to abandon the eurozone.

Mattarella’s move was not the first time a president has vetoed a ministerial nomination. It also occurred under the government of Silvio Berlusconi, but was not considered as controversial.

Cottarelli will now attempt to form a technocrat government, made up of ministers who have not been popularly elected. In choosing a former IMF official, Mattarella sought to calm nerves in Brussels and around the world about the rise of anti-EU populism in Italy. But Cottarelli is expected to lose a vote of confidence in the parliament, which will then lead to new elections being called, possibly as early as August.

The election is expected to be fought along stark battle lines: whether the country is for or against continued inclusion in the eurozone, at a time when Brussels – and the fiscal constraints it has imposed – is partly blamed for Italy’s stagnant growth and high rate of unemployment.

While it is clear that both Di Maio and Salvini have consistently questioned Italy’s place in the eurozone, and will probably campaign in favour of a more combative approach towards Brussels, it is unclear who in Italy’s political class will make a strong case for the EU and the euro.

“The cleavage is between those who support sovereignty and those who support Europe. Who will represent the case for Europe? That is the real question,” said Sergio Fabbrini, the director of Luiss School of Government.

It is a stunning development less than two weeks after the M5S and the League had agreed a common agenda to form what would have been western Europe’s first populist government.

Beppe Grillo, the M5S founder, pointed a finger of blame at the markets. “People do not talk, they are depressed, because there is someone who speaks in the place of millions of Italians: the market today is the pseudonym of the most disheartening capitalism and of predation that we have in Italy,” he wrote on his blog.