Italy's populists mobilise in protest as cabinet list drawn up

[ROME] Italy's populist leaders, incensed by a failed bid for power, began mobilising 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. 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.

Mr Cottarelli, a former International Monetary Fund official picked by President Sergio Mattarella to form an interim administration, could meet the head of state as early as Tuesday, according to a senior government official who asked not to be identified.

Mr Cottarelli, 63, may serve as both premier and finance minister, the official said.

As Mr Cottarelli laboured 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 mobilise, make yourselves heard," Mr Di Maio said in a Facebook video.

He was echoed by League head Matteo Salvini, who also called for protests in the country's piazzas over the weekend. Mr 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.

Yields on Italy's two-year government bonds rose 40 basis points on Monday and Italian stocks dragged down gauges across Europe. The euro declined 0.2 per cent to the weakest against the US dollar in almost seven months.

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.

Mr 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 Mr Cottarelli even before he was tapped to form a government, and Silvio Berlusconi said Monday that his party will vote against the former IMF official.

Mr 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 Mr 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. Mr 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," said on Facebook.

A professor at Bocconi University in Milan, Mr 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 (S$46.87 billion) over three years. Only part of the plan was implemented and he complained about resistance from Italy's bureaucracy.

BLOOMBERG