Italy's president asked Giuseppe Conte to head up a coalition of the 5-Star Movement and opposition Democratic Party (PD) on Thursday, a move could that could improve Italy's fractious relations with the European Union.
Markets welcomed the prospect of a quick end to athree-week political crisis triggered by League leader Matteo Salvini, who pulledhis hard-right party out of its governing alliance with 5-Star after weeks ofpublic bickering.
Salvini had wanted fresh polls to capitalise on hisparty's success in European elections but his plan backfired as 5-Star and thePD, lagging the League in opinion surveys, set aside their long-standingantipathy to form a government.
Italy's 10-year borrowing costs fell to an all-time low at auction on Thursday on the news as the prospect of a snap election retreated.
Conte, who told reporters he would present a cabinet list to the president in the coming days, said his priority was to draft a 2020 budget.
"We must immediately get to work and draw up abudget to avert the VAT hike, protects savers and offers solid prospects foreconomic growth and social development," he said.
VAT will rise from Jan. 1 unless the government can find 23 billion euros ($26 billion) elsewhere.
The creation of a new government is not yet a donedeal, however, and the two parties still need to agree a shared policy platformand divide up cabinet posts.
