Italy could still get a populist coalition government despite a move last week by the countrys president to block its formation.
Luigi Di Maio, the leader of the anti-establishment Five Star Movement, indicated on Wednesday that he was willing to compromise on his choice of finance minister previously the main roadblock to agreeing an administration.
Though the Five Star Movement (M5S) and their far-right would-be coalition partners the League have agreed a broad programme for government, Italys president refused to sign off M5S pick Paola Savona, a eurosceptic economist, for the key role.
Mr Savona has previously described the eurozone as a German cage for Italy, but the countrys president said because neither party had addressed exit from the single currency in their manifesto the policy could not be brought in by stealth now.
Speaking on Wednesday Mr Di Maio however insisted that his pick for Prime Minster, lawyer Giuseppe Conte, should remain in place. He said he would otherwise back snap elections.
There are two paths ahead. Either we launch the Conte government with a reasonable solution or we vote right away, he said.
Markets calmed on the news that the M5S leader had met informally with the president Sergio Mattarella and the presidents favoured pick for prime minister, Carlo Cottarelli. Mr Cottarelli is a former IMF economist and has been nick-named Mr Scissors because of his propensity to cut public spending, which would put him at odds with the populists government commitment to scrap austerity measures.
The possibility of a populist eurosceptic government in one of the EU’s founding states has worried Brussels. The government has pledged to end austerity and also to deport migrants, according to a joint programme drawn up by the two parties. It would have only a narrow majority.
Italys presidency, which is indirectly elected by an electoral college, is mostly a ceremonial office. But the president has a role in signing off the formation of governments, as well as other limited powers.
League leader Matteo Salvini, has said he favours fresh elections instead of further negotiations. Mr Salvini said he was not at the market for a new deal.
Di Maio is open [to a deal]? We are not inthe market. Lets go vote right away. We have tried to forma government but it is never good enough for Mattarella [the president], so then you give up. The president should explain how we get out of this impasse, Mr Salvini said.
The far-right leaders attitude is likely influenced by the fact his party has surged in the polls since the March elections up from 17.4 per cent then to 25.4 per cent now, according to an Ipsos survey.
The party appears to have gained at the expense of other right-wing parties, including Forza Italia, former prime minister Silvio Berlusconis old outfit. The centre-left Democratic party are stable on around 18 per cent, a record low, while M5S are stable on around 33 per cent, a record high.