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Italy may return to polls in July

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ROME (Reuters) – Italy may hold repeat elections as early as July after the man asked to be prime minister failed to secure support from major political parties for even a stop-gap government, sources said, as markets tumbled on the growing political turmoil.

Italy has searched for a new government since inconclusive elections in March, with the president finally designating former International Monetary Fund official Carlo Cottarelli as interim prime minister until a new vote is held between September and early 2019.

But sources close to some of Italy’s main parties said there was now a chance that President Sergio Mattarella could dissolve parliament in the coming days and send Italians back to the polls as early as July 29.

That prospect emerged immediately after Cottarelli met the president on Tuesday afternoon and left without making any statement. Cottarelli had been expected to announce his stopgap government’s cabinet after those talks.

A source close to the president said Cottarelli had made no mention in the meeting of an intention to give up his mandate and that he was simply finalising his cabinet lineup.

Major parties, though, sensed Cottarelli’s mission was all but dead and called for parliament to be dissolved immediately.

Italy suffered its biggest market selloff in years amid investor fears the election would deliver an even stronger mandate for anti-establishment, eurosceptic politicians, casting doubt on Italy’s future in the euro zone.

Yields on Italy’s two-year bonds, the most sensitive to political upsets, suffered their biggest one-day jump since 1992.

The euro also hit multi-month lows, as credit rating agency Moody’s signalled a possible downgrade for Italy if the next government failed to address its debt burden.

Central bank Governor Ignazio Visco said Italy “must never forget that we are only ever a few short steps away from the very serious risk of losing the irreplaceable asset of trust,” but there were “no justifications” for the market turmoil.

President Mattarella had looked to Cottarelli as prime minister to calm political and market turmoil, which Italy’s two anti-establishment parties blame on the president himself after he vetoed their choice for economy minister in their would-be coalition government.

The 5-Star Movement and the far-right League, the biggest winners from the March election, declined to nominate an alternative candidate and abandoned plans to form a government, switching back into election mode, with 5-Star Movement calling for Mattarella to be impeached.

The election campaign is likely to centre on Italy’s relationship with the European Union and in particular the budget restraints imposed on members of the euro zone.

A poll by SWG showed support for the League had jumped to 27.5 percent, up about 10 points from the March 4 elections. With support for 5-Star falling about three points to 29.5 percent, the two combined would have a majority in parliament if they decided to join forces again.

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