ROME — Italian President Giorgio Napolitano on Wednesday asked center-left deputy leader Enrico Letta to form a new government, signaling the end of a damaging two-month vacuum since elections in the euro zone's third largest economy in February.
Letta, a youthful former Christian Democrat from the right wing of his Democratic Party, said he would start talks to form a broad-based coalition on Thursday. It will likely go to parliament for a vote of confidence by early next week.
The prime minister designate is expected to select a group of ministers, mixed between politicians and technocrats, under the guidance of Napolitano, whose own unprecedented re-election last weekend opened the way for an end to the crisis.
The new government will be backed primarily by Letta's center-left and the center-right of Silvio Berlusconi, which had hitherto repeatedly failed to cut a deal following inconclusive elections two months ago.
Formation of a government after a lengthy and turbulent political impasse will send a signal that Italy might at last be ready to make a start on much-needed reforms.
Accepting his mandate, Letta said he was surprised by the nomination and felt a profound responsibility on his shoulders. But he said he would not form a government "at all costs", warning that the warring parties must make compromises.
Italy faced an untenable "difficult and fragile" situation and the government must provide answers on jobs, poverty and the crisis facing small businesses in a deep recession, he said.
He added that European Union economic policies had been too focused on austerity instead of growth and that Italy's electoral and parliamentary system must be reformed.
Napolitano's choice of Letta instead of veteran former Prime Minister Giuliano Amato, who was said to have been his original favorite, indicated he had plumped for a more political figure who reflects a generational change in Italian politics.
The bespectacled and balding Letta, an urbane moderate who speaks fluent English, is 46 against Amato's 74 and is an elected member of parliament unlike the older, more experienced man.
He will be the second youngest prime minister in Italian postwar history and as a staunch pro-European is likely to be welcomed by foreign governments and markets.
Investors had already reacted with relief to the prospect of an end to the intractable crisis, with Italy's two-year borrowing costs on Wednesday tumbling to their lowest level since the start of European monetary union in 1999.
However, the country's problems are not over, with significant differences remaining between left and right over economic policy.
These were put sharply into focus even before Letta was chosen when Renato Brunetta, house leader for Berlusconi's PDL party, said they would only support a government committed to repealing a hated housing tax introduced by outgoing technocrat premier Mario Monti and paying it back.
The center-left agrees only to a partial reduction of the tax and many economists say such a move would leave a gaping hole in Italy's public accounts.
But Napolitano, who reluctantly agreed to serve another term as president, has made clear that he will brook no more endless squabbling between the parties and has threatened to resign if they do not unite behind economic policies and important constitutional reforms.
Chief among these is the repeal of a dysfunctional electoral law which was largely responsible for the post election impasse.
Letta, the nephew of Berlusconi's long-time chief of staff Gianni Letta, is close to former party leader Pier Luigi Bersani, who resigned at the weekend after rebels sabotaged him in the voting for a new president in a debacle that threatens to tear the PD apart.
Berlusconi's People of Freedom (PDL) party, Letta's PD and Monti's centrist Civic Choice movement had all said they would cooperate with whomever Napolitano chooses.
"Given the crisis the country finds itself in, the country needs a strong, a durable government that can make important decisions," Berlusconi said after meeting Napolitano on Tuesday.
The billionaire media magnate has exploited the center-left's divisions, with one poll this week giving the center-right an eight-point lead. This could be a worry for Letta if he forms a government, with Berlusconi tempted to pull the plug if he does not get his own way.
In February's general election, the center-left narrowly won a majority in the lower house but failed to win control of the Senate and was not able to form a government.
Italy's economy has been the most sluggish in Europe for more than a decade and mired in a deep recession since the middle of 2011, with no recovery in sight.
© 2014 Thomson/Reuters. All rights reserved.