Italy’s newly appointed Prime Minister Paolo Gentiloni begins first week in role with cabinet selections

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Paolo Gentiloni, Italy's sixth prime minister in less than a decade, launched his new government Monday night amid predictions its tenure could last only a few months as the country's rising populist parties demand a snap election.

Mr. Gentiloni, 62, was foreign minister until Sunday, when Italian President Sergio Mattarella appointed him caretaker prime minister. As expected, Mr. Gentiloni left the previous government's Finance and Economy Minister, Pier Carlo Padoan, in place to deal with the disaster at Monte dei Paschi di Siena (MPS), the third-largest Italian bank whose failure could spread contagion throughout the European Union.

Most of his other cabinet appointees were carry-overs from the last government, which was led by his predecessor, Matteo Renzi, who resigned after the referendum on constitutional change went overwhelmingly against him and his centre-left Democratic Party. Mr. Gentiloni's government is the 64th since the end of the Second World War.

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The main beneficiary of the referendum's "No" vote was the Five Star Movement (M5S), the anti-establishment party which has taken the lead in the polls and could form the next government. M5S's victory would make Italy home to the first populist party in a large EU economy, triggering a potential existential crisis for a region already hit by Britain's vote to leave the EU. M5S, led by former comedian Beppe Grillo, has pledged to hold a referendum on the euro.

Mr. Gentiloni will have a narrow mandate – prevent MPS from blowing up and leading the government to the next election, which cannot happen until a new electoral law is passed. "Designing new electoral laws will not be easy and not quick, and a new government will be in its full capacity soon," said Lorenzo Codogno, chief economist at London's LC Macro Advisers. "So my guess is that the next political elections will be as scheduled in the spring of 2018."

But other observers of the perennially messy Italian political scene think an election could happen far earlier, probably this spring. Analysts at Citigroup note that Italian elections, for traditional reasons, always happen between February and June and there is not much sense having one in the early fall, given the long Italian August-September holiday.

Mr. Renzi, who is remains as leader of the Democratic Party, which holds a majority in parliament, is already plotting his comeback and is thought to favour a spring election even though the polls are working against the centrist parties. An Ipsos poll published Sunday in Il Corriere della Sera newspaper put M5S at 31.5 per cent, against 29.8 per cent for the Democratic Party.

Mr. Renzi may be gambling that the popularity of M5S has peaked and that the new electoral law, which should be passed in early 2017, would make it hard for M5S to gain a majority. Mr. Grillo refuses to form coalitions and Italy's typically fractious governments usually govern by coalition. "For us, this government has an objective to change the electoral law and go to elections as soon as possible," Ettore Rosato, the Democratic Party's chief whip in parliament's lower house, told Il Corriere on Sunday.

But political consultant Francesco Galietti, chief executive officer of Rome's Policy Sonar, thinks Mr. Renzi wants a quick election for fear that time will allow M5S to build on its political momentum, potentially putting the young party into an unassailable position in 2018. "His trajectory is downward, so the more he waits, the worse it gets for him."

Mr. Gentiloni, an ally of Mr. Renzi who is highly unlikely to challenge him for leadership of the Democratic Party, is considered a sober, steady hand.

In his youth, he flirted with revolutionary politics and, later, became close to Italy's small Green Party. At one point, he was editor of the Green magazine The New Ecology. An opera buff who is married to an architect, he is the descendant of Italian nobility, is fluent in English and has embraced centrist politics in recent years. He was elected to the lower house of parliament in 2001.

As foreign minister under Mr. Renzi's three-year premiership, Mr. Gentiloni won respect from Italy's allies, especially the Americans. He supported U.S. Secretary of State John Kerry in the creation of a national unity government in Libya. But he is not in favour of strong economic sanctions against Russia even though he has not supported Russia's bombing of Aleppo, in Syria. "The military solution is not a solution in Syria," he said earlier this month. "One cannot build a negotiation and a transition from the rubble of a city."

Mr. Gentiloni's most pressing job will be to help Mr. Padoan stabilize MPS, which is in dire need of fresh capital and needs to raise about €5-billion (almost $7-billion) to cover shortfalls. MPS shares, which have lost 83 per cent of their value in the past year, rose 3.7 per cent on Monday, after chief executive Marco Morelli expressed confidence that a privately funded recapitalization plan was still possible.

If it fails, a state-sponsored bailout would emerge as the most likely option, though it would force losses onto the holders of MPS's subordinated bonds, many of whom are retail investors with much of their savings tied up in the bonds.