Italy's prime-minister designate abandons efforts to form a government after cabinet nominee vetoed

5-Star Movement's leader Matteo Salvini calls for president's impeachment after economic nominee turned down

Italy’s political future has grown more uncertain as the president refused to approve a cabinet minister and the country’s prime minister-in-waiting failed to form the continent’s first populist government.

After emerging from the Quirinal presidential palace, prime minister-designate Giuseppe Conte did not say why he could not form what would have been Western Europe’s first populist coalition.

But Italian President Sergio Mattarella told the nation minutes later he had refused to accept the nominee the eurosceptic League and 5-Star Movement parties had put forward for the key economic ministry.

Financial markets tumbled last week on fears the mooted coalition would unleash a spending splurge and increase Italy‘s already huge debt mountain, which is equivalent to more than 1.3 times the nation’s domestic output. Looking to allay investor concerns, Mr Mattarella vetoed on Sunday the parties’ choice of 81-year-old economist Paolo Savona as economic chief because he has been a vocal critic of Italy remaining in the euro.

League party leader Matteo Salvini in recent days had virtually given an ultimatum over the economy minister pick to Mr Mattarella, whose duties as head of state include sanctioning a new cabinet. Mr Salvini told right-wing supporters he had refused to submit to a presidential veto of Mr Savona.

Five-Star Movement leader Luigi Di Maio, whose party won the most seats at an inconclusive 4 March vote, demanded that parliament impeach Mr Mattarella and raised the spectre of political turmoil in the euro zone’s third biggest economy as a result.

The 4 March election had failed to produce a party with enough support to govern single-handedly. Mr Salvini and fellow eurosceptic Mr Di Maio agreed this month to join their rival forces in a coalition to break the political impasse.

With neither of them willing to back the other as prime minister, however, they ended up tapping political novice Mr Conte. The law professor at the University of Florence is a 5-Star Movement supporter.

A presidential palace official, Ugo Zampetti, told reporters on Sunday night that Mr Conte ”has given back the mandate” Mr Mattarella had given him four days earlier to try to form a government.

The economy ministry “always constitutes an immediate message of trust or alarm” for financial markets, Mr Mattarella said, adding that he had asked for someone who was not “supporting a position expressed more than once that could probably, or in fact inevitably, provoke Italy‘s exit from the euro”.

Mr Mattarella said he was considering political party leaders’ requests for another election and would announce his next move “in the [coming] hours”.

Anticipating Mr Mattarella’s decision, Mr Salvini said: “We’re not a free country. We’ve got limited sovereignty”. Mr Di Maio also scathingly criticised Mr Mattarella’s veto of Mr Savona as “incomprehensible”. “This is not a free democracy,” Mr Di Maio said.

The 5-Star Movement is the largest party in the new parliament but remains far short of having an absolute majority. Italy‘s outgoing economy minister Pier Carlo Padoan said in a TV interview on Sunday that the real problem is not Mr Savona, whom he described as having a good background for the post.

Mr Padoan said the real problem was having a populist government. He said it is a “clearly unsustainable” platform ”that doesn’t rule out a Plan B: that is, in the face of European pressures, one must leave Europe”.

Mr Mattarella had also summoned Carlo Cottarelli, a former senior director at the International Monetary Fund (IMF), for talks on Monday. Mr Cottarelli would be a calming choice for the financial markets, but any technocrat administration would likely only be a short-term solution because the majority of parliamentarians have said they would not support such a government.

If he failed to win parliamentary backing, Mr Cotarelli would stay in office in a caretaker capacity ahead of elections that would most likely be held in September or October.