Second day of Italy crisis talks after PM resigns

Rome: Italy's president began a second day of talks Thursday aimed at solving the political crisis shaking the country after the disintegration of the populist government.

President Sergio Mattarella was set to meet all the main parties, including the anti-establishment Five Star Movement (M5S) and far-right League, after the breakdown of their dysfunctional coalition.

Prime Minister Giuseppe Conte resigned Tuesday after months of alliance sniping and a bid by League leader and Interior Minister Matteo Salvini to force a snap election, just 14 months after coming to power.

The nationalist, populist government's demonisation of migrants, promoted by Salvini in particular, and attempts to flout EU budget rules had angered many European leaders.

Mattarella met the leaders of both houses of parliament on Wednesday and has been trying to find a way forward.

Talks kicked off Thursday with the small far-right Brothers of Italy (Fratelli d'Italia) party, which could ally with Salvini's League, a long-time ally, if the country goes to the polls.

The formation of a new coalition, a short-term technocratic government or an early election -- more than three years ahead of schedule -- are the main options.

"The only way to have a stable government is to go to the polls. It's the only option which respects Italy, its interests, its people and its constitution," Brothers of Italy leader Giorgia Meloni told the press after meeting Mattarella.

The president is determined any political wrangling to form a new government be quick and wants a concrete plan in place by Monday, a source close to him was reported as saying by the Repubblica daily.

A proposed alliance between M5S and opposition centre-left Democratic Party (PD) -- previously almost unthinkable -- appears to be gaining traction, with PD leader Nicola Zingaretti saying he is ready to make a deal.

The PD and M5S have been at each other's throats for years -- but an alliance would see Salvini kicked out of government, a powerful motive for compromise.

Zingaretti has said the party would back an M5S coalition dependent on five conditions, including a radical shift in Italy's zero-tolerance policy on migrants crossing the Mediterranean.

He later told "La 7" television he was also against the idea of Conte staying on as prime minister.

M5S would like Conte to remain in place but did not give much away, saying it would "wait for the end of consultations".

The parties were also considering a female PM, according to media reports, which would be a first for Italy.

In a bid to get a PD-M5S alliance off the ground, former PD premier Matteo Renzi has said he will not participate.

Many in the anti-establishment party view him as elitist.

Salvini, who is also deputy prime minister, on Wednesday said: "No matter which government emerges, its goals will be against the League." The end of the unstable coalition government in the eurozone's third-largest economy has so far been welcomed by the markets, with a sharp rise in the Milan stock market on Wednesday.

The country's debt ratio -- 132 per cent of gross domestic product -- is the second-biggest in the eurozone after Greece, and youth unemployment is currently above 30 per cent.

Governments have consistently struggled to bring down debt levels and unemployment.

"Italy's disharmonious political backdrop and the country's budgetary challenges extend well before the sovereign debt crisis," said Rabobank analyst Jane Foley.

Rome needs to approve a budget in the next few months or potentially face an automatic rise in value-added tax that would hit the least well-off Italian families the hardest and likely plunge the country into recession.

"(The crisis) arrives at a critical juncture for Europe amid the risk of recession in Germany and the formation of the new European Commission, and could contribute to deteriorate significantly the confidence on the eurozone," said Andrea Montanino, chief economist at the General Confederation of Italian Industry.

After last year's election it took months of wrangling before a government was formed.

Mattarella has made it clear he wants talks to conclude quickly but splits within the PD and M5S, as well as sharp policy differences, could complicate coalition efforts.

A PD-M5S tie-up would realistically also need support from smaller parties to be an effective government. (AFP) SCY