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Italy hurries to form new government as banking crisis looms

ROME (Reuters) - Italian President Sergio Mattarella asked Foreign Minister Paolo Gentiloni on Sunday to try to form a new government, giving him a mandate to lead Italy out of a political crisis caused by the resignation of Matteo Renzi.

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Gentiloni, a former journalist and Renzi loyalist, is set to be Italy’s fifth prime minister in as many years and the fourth in a row to take office without winning a national election.

The soft-spoken 62-year-old immediately began consultations to form a government that will have to write a new electoral law and manage Italy’s fragile banks.

Chief among his duties will be dealing quickly with Monte dei Paschi di Siena BMPS.MI, the country's third-largest lender, which may need state intervention to avoid collapse.

“I am aware of the urgent need to give Italy a government with full powers, to reassure our fellow citizens, to confront our international, economic and social priorities,” he said.

Italy’s social and political divisions were laid bare in campaigning for a Dec. 4 referendum on constitutional reform that was roundly rejected, prompting Renzi to resign.

All major parties have called for elections as soon as possible, but replacing the current electoral law, which applies only to the lower house and could be declared invalid in January by the Constitutional Court, is also likely to dictate the timetable.

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Elections could be called as soon as parliament finishes rewriting the electoral law. Gentiloni said he would “facilitate, if possible, the parliamentary forces’ task of quickly defining new electoral rules”.

“There are just two windows of opportunity for elections, either it’s a snap election in Q2 2017 or it’s the natural end of the legislature in 2018,” said Francesco Galietti of risk consultancy Policy Sonar.

He said several factors could influence the election date, including dealing with the banking crisis, the summit of the G7 nations scheduled in Sicily in May, and the need to name chiefs for a raft of state-owned companies as tenures run out.

Commentators said Gentiloni could present his list of proposed cabinet members to the head of state as early as Monday, even waiting until after European markets opened.

“The important thing is that the markets already know that with Gentiloni there will be no radical change,” said Maurizio Caprara, commentator for Italy’s Corriere della Sera newspaper.

Gentiloni said his government would move “within the same framework” as the outgoing government but Renzi’s Democratic Party (PD) is itself severely divided between backers of the former prime minister, such as Gentiloni, and opponents.

Once his cabinet is sworn in by the president, the government will then face votes of confidence in both houses of parliament. The ruling coalition, headed by the PD, has a majority in both so Gentiloni could win the votes in time to attend a European Union meeting on Thursday as prime minister.

Opposition parties such as the anti-establishment 5-Star Movement and former prime minister Silvio Berlusconi’s centre-right group refused to take part in a national unity government.

Alessandro Di Battista, a prominent 5-Star deputy, hit out against Gentiloni’s appointment on Twitter: “Enough of governments that descend from above, enough of Renzi’s avatars ... the Italian people can’t stand this any more!”

Additional reporting by Antonella Cinelli; Editing by Philip Pullella and Tom Heneghan