Italian bonds sink after coalition talks fail
Italians will be asked to head back to the polling stations in summer or autumn after talks to build a government coalition failed.
That is unless the country's president Sergio Mattarella chooses to put a neutral caretaker government in place instead.
However, although Mattarella has the final say, the leftist Five Star movement and the right-wing League have already expressed a preference for the former of those two options.
And without their support, or at least abstention, it was unclear whether a caretaker government would be able to muster the support needed to win votes of confidence in both chambers of parliament, said analysts at Barclays Research.
Speaking on Monday night, Matarella called on the main parties to back a neutral technocratic government, saying "We can't wait any longer".
"Let the parties decide of their own free will if they should give full powers to a government [...] or else new elections in the month of July or the autumn," he said.
To take note of as well, if fresh elections were put off until September, then the new government may not have enough time to enact the alternative fiscal measures needed to avoid triggering fiscal safety clauses, as Mattarella pointed out in his speech, Barclays added.
In reaction to Monday's news, as of 1030 BST traders were pushing the yield on the benchmark 10-year Italian government note up by 10 basis points to 1.86%.
Nevertheless, Barclays believed a September ballot was more likely as a summer vote might result in a lower turnout.
Critically too, since the inconclusive 4 March general elections, the largest party in the new parliament, the Five Star, had been unable to agree on joining forces with either the League of the centre-left Democratic Party.
Yet once new elections are held the political calculus might favour a deal between Five Star and the League, with the latter brealing its alliance with Italy's junior centre-right parties.
A caretaker government, which would be made up of technocrats chosen by the President would be charged with drawing up a budget for 2019 and be dissolved before fresh elections were held towards the beginning of next year.
If a workable governing majority could be agreed upon in the meantime then the date for its dissolution would be brought forward.