By Giovanni Legorano 

ROME -- Italy was thrown into political turmoil Sunday evening, as the Italian president blocked the formation of a new government supported by two anti-establishment parties due to concerns the coalition could endanger Italy's membership in the single currency.

Italian President Sergio Mattarella blocked the ascent to power of a government supported by the maverick 5 Star Movement and the hard-right League after they proposed a euroskeptic figure as economy minister, an especially delicate job for a country with a EUR2 trillion public debt.

The dramatic developments sparked immediate calls Sunday evening from the two maverick parties for fresh elections.

But Mr. Mattarella instead will likely on Monday ask Carlo Cottarelli, a former International Monetary Fund official, to attempt to form a new government. But even if Mr. Cottarelli succeeds in forming a new government, fresh elections in Italy are now increasingly likely.

Nearly three months after parliamentary elections, 5 Star and the League appeared poised to form a government that would bring an antiestablishment, euroskeptic coalition to power in the eurozone's third-largest economy. They proposed Giuseppe Conte, a political neophyte and little-known academic, as prime minister.

However, the coalition also insisted on appointing Paolo Savona, an 81-year-old economist and former industry minister, to become Italy's new economy minister, an especially delicate job in a country with the world's third-largest public debt, a weak banking sector and an economy that is the only Group of Seven nation still smaller than before the financial crisis which began in 2008.

Concerns over the nomination and the coalition's economic program -- including bold promises to radically revamp the rules underpinning the single currency -- have driven Italian bond yields higher in the last week, potentially ratcheting up the cost of servicing Italy's enormous debt.

Mr. Savona, a former Bank of Italy official, won over the 5 Star and the League for strongly euroskeptic views. "Germany has not changed the vision of its role in Europe after the end of the Nazi era, although it has abandoned the idea of impose it militarily," Mr. Savona wrote in an autobiography. He also wrote that Italy should prepare for the eventuality of leaving the euro "whether we are forced, willingly or unwillingly, to do so," a stance he has often repeated.

Such views alarmed Mr. Mattarella. In remarks Sunday evening, Mr. Mattarella said he had asked the parties for another figure, one who "isn't seen as supporting a position that could possibly or even inevitably lead to Italy's exit from the euro.

"That is quite distinct from a strong Italian position that favors changing the European Union," he said. "But there was an unwillingness to accept my request."

Sunday's developments underscore the disruptive power unleashed by the March parliamentary elections, in which more than half of Italians cast votes for populist parties. It is the first time political parties have refused to accept an Italian president's request to change a ministerial pick.

"We were ready to govern and we were told 'No'," said 5 Star leader Luigi Di Maio Sunday evening. "This is unacceptable. This is an institutional clash unseen before."

Mr. Di Maio said he plans to make a request in parliament to have Mr. Mattarella impeached for allegedly betraying the state. A spokesman for Mr. Mattarella declined to comment.

On Sunday, Matteo Salvini, the 45-year-old leader of the League, suggested Italians should now go back to vote.

"If we have a minister who is not appreciated in Berlin, it means he's the right minister ... In Italy, Italians decide," Mr. Salvini told supporters Sunday. "In a democracy -- if we are still in a democracy -- there's only one thing to do: Let the Italians have their say."

Mr. Mattarella will likely ask Mr. Cottarelli to attempt to form a government that would remain in power for a short time and could be charged with specific reforms -- possibly including a new electoral law aimed at producing more durable governments. However, assembling support for such a government could prove exceedingly difficult.

The impasse now leaves Italy in a political vacuum nearly three months after parliamentary elections. The League and the 5 Star Movement emerged from the vote victorious by giving voice to Italians' deep worries over the direction of a country that has borne the brunt of Europe's twin economic and migration crises.

Earlier this month, the two parties struck an agreement to form a new government, pledging to deliver on bold promises to rewrite the rules for the single currency, deport hundreds of thousands of immigrants, enact deep tax cuts and establish a universal basic income for Italy's poor and unemployed.

If Italy returns to the polls, both 5 Star and the League could emerge even stronger, particularly if Italians blame the political establishment for preventing the pair from coming to power.

The League won 18% of the popular vote in March and has since risen further in the polls, with about 23% of support. Five Star, which got 32% of the popular vote and is Italy's biggest single party, has also seen its support edge higher.

Write to Giovanni Legorano at giovanni.legorano@wsj.com

(END) Dow Jones Newswires

May 27, 2018 17:05 ET (21:05 GMT)