Italian President Sergio Mattarella met with prime minister Giuseppe Conte on Thursday to give him a mandate to form a new government after a deal to stave off snap elections.
The anti-establishment Five Star Movement (M5S) and the centre-left Democratic Party (PD), once bitter foes, agreed on Wednesday to govern in coalition following the collapse of Italy's populist government earlier this month.
Conte - a soft-spoken former academic chosen as a compromise prime minister last year - is expected to be given a few days for political consultations to ensure a working majority in parliament.
Italian Deputy Prime Minister Matteo Salvini (L), Italian Prime Minister Giuseppe Conte (2nd L), M5S chief Luigi Di Maio (2nd R), and Deputy Prime Minister Giancarlo Giorgetti pose for a picture during the first cabinet meeting of the new government at the Palazzo Chigi in Rome, Italy, June 1, 2018. /VCG Photo
M5S chief Luigi Di Maio has said the deal with the PD will have to be approved by his party's members in an online vote, which could take place by this weekend.
The crisis was triggered on August 8 when popular far-right leader Matteo Salvini withdrew his League party from the governing coalition with M5S, calling for fresh elections he thought would make him premier.
Mattarella has been racing to find a solution to the political turmoil, with Italy - grappling with a huge debt mountain - under pressure to approve a budget in the coming months.
Without a new government at the reins it could face an automatic rise in value-added tax that would hit the poorest families the hardest and could plunge the country into recession.
Italy's President Sergio Mattarella (L) shakes hands with Democratic Party leader Nicola Zingaretti in Rome, Italy August 28, 2019. /Reuters Photo
"The agreement means we won't have an election in the autumn and any budget confrontation with Brussels later this year may be less fierce than last," said Craig Erlam, senior market analyst at OANDA.
"The two parties still very much have their differences and it's unlikely to be a harmonious relationship but it will likely be a better match than the last," he said.
Investors and markets have welcomed the likely return to political stability in the eurozone's third largest economy, with Italy's 10-year bond yield falling to a record low Wednesday.
But analysts have warned the deal between the M5S - which had sworn never to ally with traditional parties - and the centre-left, which has long loathed it, could quickly crumble.
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Italian 5-Star and opposition PD want to form coalition led by Conte
"Any new government formed by these unlikely bedfellows has the potential to be a fairly short-lived affair, given that the onus will now fall on a new administration to implement new EU mandated spending reductions of up to 23 billion euros this autumn," said Michael Hewson, chief market analyst at CMC Markets UK.
"These are not expected to be popular and likely to feed into the populist narrative of Matteo Salvini," he added.
Salvini said Wednesday his party was confident it would win eventual new elections next year, saying "we're in no hurry."
(With input from AFP)