Salvini scuppered as Conte gets green light to from new government in Italy
Italy's president has asked Giuseppe Conte to return as prime minister by heading up a coalition of the 5-Star Movement and opposition Democratic Party (PD), a move that could improve Italy's relations with the EU.
Markets welcomed the quick end to a three-week political crisis triggered by League leader Matteo Salvini, who pulled his hard-right party out of a governing alliance with 5-Star after weeks of public bickering.
Mr Salvini had wanted fresh polls to capitalise on his party's success in the European elections, but his plan backfired as 5-Star and the PD, lagging the League in opinion surveys, set aside their long-standing antipathy to form a government.
Italy's 10-year borrowing costs fell to an all-time low at auction yesterday as the prospect of a snap election retreated.
Mr Conte, who told reporters he would present a cabinet list to President Sergio Mattarella in the coming days, said his priority was to draft a 2020 budget.
"We must immediately get to work and draw up a budget to avert the VAT hike, protects savers and offers solid prospects for economic growth and social development," he said.
VAT will rise from January 1, unless the government can find €23bn elsewhere.
The creation of a new government is not yet a done deal, however, and the two parties still need to agree a shared policy platform and divide up cabinet posts.
In a further complication, 5-Star has promised to put the deal with the PD to an online vote of its members. Many 5-Star supporters oppose a pact with the centre-left and a 'yes' vote is not a certainty.
Mr Conte was seen as a voice of reason within the previous 5-Star/League coalition and investors are betting Italy will get a fiscally prudent government that will avoid confrontation with Europe.
According to the financial daily 'Il Sole 24 Ore', a draft of the incoming coalition's policy platform would see it ask the EU for flexibility on the 2020 budget deficit to "reinforce social cohesion" in Italy.
The EU imposes budget rules on member states with the aim of ensuring financial stability in the bloc. It has had a testy relationship with Rome under the outgoing administration, with Mr Salvini blaming EU rules for impoverishing Italians.
He had promised swinging tax cuts for 2020 that economists warned could put unsustainable pressure on Italy's towering debt mountain.
Mr Conte, a quietly spoken academic, has enjoyed high poll ratings since he was plucked from relative obscurity 14 months ago to become premier. While he has no political affiliation, he is considered close to 5-Star.