Financial turmoil engulfs Italy

Market falls amid euro-exit fears

MILAN — The specter of a financial crisis came back to haunt Italy on Tuesday, as its markets plunged on fears that it is heading toward another election that could shape up to be a referendum on whether to stay in the common currency.

Carlo Cottarelli, a former IMF official, was tapped as premier of a non-political government of technocrats after an attempt by two populist parties to form a government foundered. The president, who in Italy appoints the premier and ministers, had opposed the populists’ choice of a euroskeptic economics minister.

Cottarelli was expected to submit his list of ministers to President Sergio Mattarella on Tuesday, but left the president’s office without comment after about an hour. A spokesman for Mattarella said the two would meet again Wednesday morning, and that Cottarelli needed more time to work on the Cabinet.

The Cottarelli government, which would see Italy through a period of uncertainty, seems doomed even before it’s created. The populist parties, which got the most votes in the inconclusive March election, have promised to vote against it in a confidence vote. That would force Italy to new elections in the late summer or early fall.

The anti-establishment 5-Star Movement and the anti-euro League have been emboldened by the president’s dismissal of their government in favor of an unelected group of technocrats. They say it shows the establishment ignores the popular vote.

That could raise the stakes for the next election by making it more clearly about whether Italy should reconsider its membership in the euro.

“Italy will be wrapped in a long drawn-out period of wrangling that will feature intense anti-establishment and euroskeptic tones,” said political analyst Wolfango Piccoli. He said that while he doubted either populist party would embrace a clear euro-exit platform, they would be more combative toward Brussels.

The Milan stock index closed down more than 2.7 percent, burning 17 billion euros in capitalization, and Italian bonds suffered a plunge reminiscent of the worst days of the financial crisis of 2011.