Italian President Sergio Mattarella said he refused to approve populist leaders' choice of an economy minister who has expressed anti-euro views because the appointment would have "alarmed markets and investors, Italians and foreigners".
The anti-establishment Five Star Movement said it was considering proposing impeachment of President Sergio Mattarella after his veto, while anti-immigrant League leader Matteo Salvini hinted at a conspiracy and made a thinly veiled call for fresh elections.
Following the rejection of Paolo Savona's candidacy for minister of economy, ex PM-designate Conte said he had given up on attempts to form a government, leaving open the possibility the country would face new elections.
Conte, a little-known law professor with no political experience, took his list of ministers to President Sergio Mattarella in a bid to end a two-month political stalemate.
"We were a few steps away from forming a government, and we were stopped because in our cabinet there was a minister who criticised the EU", Di Maio said in an interview on RAI state television.
Article 90 of the Italian constitution foresees recourse to impeachment only in two cases: high treason and an attack on the constitution itself, which Di Maio has said could be invoked in the present case.
Demanding an immediate ballot, Salvini told followers on Facebook: "It won't be an election, it will be a referendum between Italy and those on the outside who want us to be a servile, enslaved nation on our knees". The new government would aim to reduce public debt and the budget deficit not with taxes and austerity, but through economic growth by boosting domestic and foreign demand.More news: Atlético defeated Marseille in the final of the Europa League
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Markets rallied on the news that Italy's economy, the euro zone's third-biggest, would not be guided by a government hostile to the single currency.
The country could be headed for another election in the coming months.
The leaders of Five Star and the League, Luigi Di Maio and Matteo Salvini, were infuriated by Mattarella's refusal to accept Savona, a respected financier and economist.
The elections are expected to go ahead in the fall-already, this is the longest time since the Second World War that Italy has gone without a government.
"I have given up my mandate to form the government of change", said lawyer and political novice Giuseppe Conte, 53, plunging the country into a political crisis almost three months after March's inconclusive general election.
"President [Sergio Mattarella] has received Prof".
League and 5-Star "have a parliamentary majority". Both the 5-Stars and the League have signaled they would deprive a Cottarelli government of their votes in Parliament, meaning his would be a caretaker government. Instead, he said, the powers-that-be didn't like his choice for economics minister so they pulled the plug. He is meeting Mr Cottarelli this morning, an official said.