Italian prime minister-designate Giuseppe Conte, left, talks to Italian President Sergio Mattarella, right, at the Quirinal Palace in Rome on May 31 2018. Picture: HANDOUT VIA REUTERS
Italian prime minister-designate Giuseppe Conte, left, talks to Italian President Sergio Mattarella, right, at the Quirinal Palace in Rome on May 31 2018. Picture: HANDOUT VIA REUTERS

Rome — Italy’s populist Five Star Movement and League parties prepared to sweep to power in a spectacular reversal of political fortunes that brings an end to three months of deadlock and opens the way to a period of friction with Europe.

Giuseppe Conte, a law professor with no political experience, will be sworn in as prime minister along with his cabinet at 4pm local time on Friday by President Sergio Mattarella.

The government was pieced together after weeks of Byzantine wheeler-dealing during which Five Star’s Luigi Di Maio and the anti-immigrant League’s Matteo Salvini managed to mesh their populist programmes — only to pull the plug on a government at the last minute after the president vetoed their pick of a eurosceptic finance minister.

With global markets in freefall at the prospect of a possible resurgence of the euro crisis, the populist leaders held on and emerged victorious as their revised cabinet was accepted late on Thursday.

Di Maio and Salvini will serve as deputy premiers, with economist Giovanni Tria as finance minister.

Eurosceptic economist Paolo Savona, who was rejected as finance minister on Sunday, will be responsible for European affairs, according to a cabinet list which Conte read to reporters.

Salvona has repeatedly urged Italy to prepare a plan for dropping the common currency.

Markets, already wary of the populist programme, took fright this week at the prospect of an incoming administration intent on challenging Europe.

The populist coalition has a programme that pledges a spending spree and tax cuts, a guaranteed "citizen’s income" for the poor, scrapping a pension reform that raised the retirement age, and challenging European Union rules.

"Convincing financial markets that these proposals will be ‘mainstreamed’ at some point will be an uphill struggle for the new executive," LC Macro Advisors founder Lorenzo Codogno, a former chief economist at the Italian Treasury, wrote in a note to clients.

"The risk of a Syriza-like trajectory should not be underestimated," he said in a reference to the radical left party that brought Greece close to being forced out of the euro.

The old order in the eurozone’s third-biggest economy buckled at the March elections as the centre-left Democratic Party of former premier Matteo Renzi suffered its worst-ever result, and Silvio Berlusconi was eclipsed as leader of the centre-right by the more hard-line League. Five Star became the single biggest party.

Italian bonds gained on Thursday after the news of the Five Star-League deal, with the 10-year yield falling about 18 basis points to 2.7% before rising again to 2.8%.

The new government is expected to face votes of confidence in the two houses of parliament on Monday and Tuesday.

Di Maio will also serve as labour and economic development minister, and Salvini as interior minister.

The foreign minister will be pro-European Enzo Moavero Milanesi, a former minister for European affairs.

Tria, currently the head of the Economy Faculty at Rome’s Tor Vergata University, has called for a debate on the euro in both Italy and in the rest of Europe.

"People who call for unconditionally leaving the euro as a cure for all ills aren’t right, but neither is the European Central Bank president Mario Draghi when he says ‘the euro is irreversible,’ if he doesn’t clarify the conditions and the timing for the reforms which are necessary for its survival," Tria wrote in a March 2017 article in newspaper Sole-24 Ore.

The previous premier-designate, Carlo Cottarelli, a former International Monetary Fund director, said on Thursday that he had given up on his attempt to form a government, telling reporters that a political administration was the best solution for the country.