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Mattarella rejected Conte's list of potential ministers due to the candidacy of Paolo Savona, who was proposed as a candidate for minister of economy.

Sensible economics or democratic vandalism?

News of Mattarella's veto sent a shockwave through Italy.

According to a report in Politico, it's not the first time an Italian president has used their authority to refuse an appointment - although this is the first time the euro currency has been cited as a reason.

"The uncertainty over our position within the euro has alarmed Italian and foreign investors who have invested in securities and companies".

Roth said he doesn't want to discuss the constitutional situation, but "we hope that there will be a stable, pro-European government in Italy without delay".

His refusal to accept as economy minister Paolo Savona, who had threatened to pull Italy out of the euro, forced the 5-Star and the League to abandon efforts to form a government.

"If there's not the OK of Berlin, Paris or Brussels, in Italy a government can not be formed".

"Italians decide their own government", Moscovici said.

Financial markets have been reassured, at least for now, by Mattarella's move.

The Italian government bond market also rose as did the euro which stood around 0.3 percent higher against the dollar amid relief that a eurozonevcrisis had been averted for now.

The president's biggest fear is that the new government will try and take Italy out of the EU.

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However, analysts believe the respite could be temporary. But market strategists doubted the rally in the euro would be sustained.

President Sergio Mattarella tapped the economist and former International Monetary Fund official on Monday to run a technocratic government after he scuttled the euroskeptic government of the 5-Star Movement and the League.

The chances of the economist gaining approval for any technocrat government are slim, as Five Star and the League boil with anger at their own coalition stumbling on the home straight.

Opinion polls suggest the populists may well benefit from the latest political turmoil.

With the president's rejection of Savona, the deal holding together the two rival parties, which won the most parliamentary seats in the March vote, risks falling apart, making another election this year likely.

Last week, it looked as if Italy was finally about to get a new government after nearly three months of political deadlock following inconclusive elections back in March.

Already, the next election is being touted as a showdown over Italy's place in Europe - with the distinct possibility that voters will seek even more radical solutions.

The president has chosen European Union rules over the votes of Italians and that's "an issue for democracy", Matteo Salvini, leader of the anti-immigrant League, said in a message on Facebook.

"I asked for that ministry an authoritative political figure from the coalition parties who was not seen as the supporter of a line that could provoke Italy's exit from the euro", he said.

"It's an institutional clash without precedent", Di Maio said on a live-streamed Facebook video.

"The main risk is that the stand-off will further embolden the 5-Star Movement, and, especially, the League".

Mattarella is more pro-European than the two populist parties asking for his mandate, analysts say.