Italy on path to fresh polls

Italy's president set the country on a path back to fresh elections yesterday, appointing a former International Monetary Fund official as interim prime minister with the task of planning for snap polls and passing the next budget.

The decision to appoint Carlo Cottarelli to form a stopgap administration sets the stage for elections that are likely to be fought over Italy's role in the European Union and the euro zone, a prospect that is rattling global financial markets.

The euro zone's third-largest economy has been seeking a new government since inconclusive March elections, with anti-establishment forces abandoning their efforts to form a ruling coalition at the weekend after a standoff with the president.

President Sergio Mattarella vetoed the parties' choice of a eurosceptic as economy minister, prompting the 5-Star Movement and far-right League party to accuse him of betraying voters and to drop their plan to take power.

Cottarelli told reporters after his appointment that elections would be held in the autumn or early next year. He also tried to reassure investors on the Italian economy.

The prospect of fresh elections raised fears among investors that the vote could become a de facto referendum on Italy's euro membership. The euro hit a fresh six-month low and yields on Italian debt climbed, increasing the extra borrowing costs or spread that Italy pays in comparison with Germany.

Already Italian politicians are back in campaign mode.

A 5-Star source said it was considering an election alliance with the League. In March, 5-Star ran its own campaign while the League campaigned as part of a right-wing coalition, including with the party of former prime minister Silvio Berlusconi.

"This is not a democracy, this doesn't respect the popular vote," League chief Matteo Salvini said in a statement after Cottarelli accepted his appointment by the president.

Salvini characterised the move as the political establishment lashing out in its death throes, intent on keeping Italy enslaved and afraid of the reaction of financial markets.