Italy coalition talks foundering, Five Star floats idea of another election

The leader of Italy's anti-establishment Five Star Movement called on Monday for early elections in June, saying efforts to form a coalition government after last month's inconclusive vote had failed.

His appeal sent a shiver through financial markets, suggesting Italy which has the third largest economy in the euro zone, faced many more months of political uncertainty.

"At this point for me there is no other solution. We have to go back to the polls as soon as possible," Luigi Di Maio said on Facebook, blaming centre-left and centre-right parties for refusing to negotiate with Five Star. Italian politics have been in limbo since an inconclusive vote on March 4, which saw a centre-right alliance led by the anti-immigrant League win the most seats and the Five Star emerge as the biggest single party.

The centre-left Democratic Party (PD) came a distant third.

Di Maio appealed to League leader Matteo Salvini to join his call for a snap election in June. The two parties have enough seats to block any coalition formation in parliament.

"Let's ask together to go and vote," he said.

Italian stocks and bond markets came under pressure following his statement, pushing the gap between Italian and German bond yields to its widest in almost two weeks.

"Another election increases the probability of a League/Five Star government, which is the least market friendly outcome," said Rabobank's Lyn Graham-Taylor.

President Sergio Mattarella, tasked with resolving the long-running political impasse, has made clear he does not want an immediate return to the polls and a ballot in June would probably be impossible to organize at this late stage.

If there was political consensus for a new vote, the most likely date would be sometime in the autumn, but before then, Mattarella would almost certainly seek backing for a unity government to try to work on electoral reform.

Both Di Maio and the League have, up until now, rejected the idea of any broad-based, non-political government taking office.

Berlusconi non grata to Five Star

Di Maio has said previously he would like to strike a coalition accord with the League, but insists that to do so, Salvini must first abandon his electoral ally Forza Italia, which is led behind the scenes by 81-year-old former prime minister Silvio Berlusconi, who retains influence despite both corruption and sexual misconduct scandals.

Salvini has refused to do this and he received a boost on Monday when his centre-right alliance, led by a League politician, won a resounding victory in a local ballot in the northeastern region of Friuli Venezia Giulia.

The vote suggested that Salvini has gained political clout at the expense of his opponents, while support for Five Star plunged some 16 percentage points from last month. However, the group often fares badly in local polls and turnout was sharply lower than in March making it hard to draw precise parallels.

With the door to a League deal apparently closed, Di Maio last week reached out to the PD, but that initiative also looked doomed after centre-left bigwig Matteo Renzi urged his party on Sunday to shun any tie up with Five Star.

"The Democratic Party lost, I resigned, seven out of 10 Italians voted for Salvini or Di Maio. It's up to them to govern," he told RAI television.

His interview angered other PD leaders, who accused Renzi of trying to impose his terms on the party ahead of a meeting set for Thursday called to decide whether to enter Five Star talks.

"In this way, the party risks extinction," the group's interim leader, Maurizio Martina, said in a statement.