Italy could see repeat elections in July after anti-establishment parties failed to reach an agreement following the inconclusive vote in March.
Rome has been in political deadlock since the outcome of the general election in early March, where no party or coalition gained a majority to govern in parliament. President Sergio Mattarella announced Monday that there are only two options to find a new government: either political parties accept a caretaker government until December and elections take place afterwards; or Italy heads to a new vote in July or in the fall.
"We can't wait any longer," Mattarella told journalists in Rome. "Let the parties decide of their own free will if they should give full powers to a government... or else new elections in the month of July or the autumn."
Mattarella wants to avoid a vote in the summer due to citizens potentially being away on holiday. Elections in the fall could also pose problems for the approval of the next budget. If Italy opts for a caretaker government then this would be formed by policy experts appointed by the president and they would not be able to run in the next election to ensure impartiality.
"There is a high risk (80 percent) that Mattarella's call on the rival political parties to support a 'neutral' government will go unheard," Wolfgango Piccoli, co-president of Teneo Intelligence, said in a note Monday.
"Both the Five Star Movement (M5S) and the League (Lega) have said they will not support a technocratic government and called for early elections in July. A negative vote by both parties would mean that the president-sponsored government will fail to secure the required confidence vote," Piccoli added.
Luigi di Maio, leader of M5S, which received the most votes in the March election, said on Twitter that he doesn't believe in a "neutral" government and called for elections in July.
Italy has never repeated elections within a few months of the initial vote.
Piccoli added that the current impasse could increase support for the populist parties. "It is also just a matter of time until the debate on a possible referendum on the euro starts hitting the headlines again," he said.
The yield on the 10-year Italian note was higher Tuesday, reaching 1.7810 percent by 7:30 a.m. London time after closing at 1.763 percent on Monday.