BMPS Banca Monte Dei Paschi Di Siena Spa

ROME—Italy's President Sergio Mattarella asked departing Foreign Minister Paolo Gentiloni to form a new government in a bid to quickly end a political crisis triggered by a 'no vote' in last week's constitutional referendum.

The 62-year-old Mr. Gentiloni, a veteran politician who has forged cross-party ties in Italy, began consultations with political parties immediately to put together a caretaker cabine t. That list was expected to emerge in time for a new potential government to seek votes of confidence in parliament by Wednesday.

Mr. Gentiloni said in a brief speech that he had accepted the mandate "with great honor and responsibility." He added he was aware of the urgent need to address the economic and social problems Italian citizens were facing and the country's upcoming international commitments.

"I'll be back to Mr. Mattarella [with a list of ministers] as soon as possible," the premier-designate told reporters. Mr. Gentiloni is expected to complete the consultations and present his cabinet to the president by Monday afternoon.

Sunday's development signaled efforts to quickly resolve a government crisis sparked by the resignation last week of Prime Minister Matteo Renzi, who stepped down after a stinging defeat in a Dec. 4 referendum on constitutional overhauls.

The urgency stems in part from the need to deal with a growing crisis at Banca Monte dei Paschi di Siena SpA, Italy's No. 3 lender and one of Europe's weakest banks. The Tuscan bank urgently needs a capital injection. But with little appetite from private investors, the new government will likely orchestrate a state rescue plan.

The problem became even more pressing Friday after the European Central Bank refused the bank's request for a 20-day extension on the end-of-year deadline the central bank had set for the lender to raise new capital.

Given the need to act quickly on Monte dei Paschi, Mr. Gentiloni is expected to reconfirm Economy Minister Pier Carlo Padoan, a well-regarded economist who has led Italy's efforts to solve the country's banking problems.

In choosing Mr. Gentiloni, Mr. Mattarella is reaching for a seasoned politician who enjoys wide support within the center-left Democratic Party, the largest party in parliament. He also has a good relationship with former Premier Silvio Berlusconi as a result of Mr. Gentiloni's stint as communications minister in the mid-2000s. Those relationships could help him navigate the political tensions that have exploded since the resignation of Mr. Renzi.

His cross-party ties could help him with the complicated task of rewriting the country's voting rules. Italian parties are pushing hard for elections to be brought forward from their current timetable of spring 2018. But the country needs a new electoral law before Mr. Mattarella can dissolve parliament because of a court challenge to the current law. Moreover, there are two different electoral rules for each of Italy's parliamentary houses, a situation that would likely produce a hung legislature.

"Gentiloni's designation means that the new government will have limited aspirations and little room for maneuver from the parties backing it," said Wolfango Piccoli, co-president of research firm Teneo Intelligence, adding that Italy was likely to hold snap elections in May or June.

Mr. Gentiloni is well-regarded on the international front. Having joined the Renzi government as foreign minister in October 2014 after Federica Mogherini stepped down to become the European Union's foreign policy chief, he spearheaded Italy's efforts to gather international support for a solution to the Libyan crisis.

Mr. Gentiloni has also had to strike a delicate balance regarding Italy's Russia policy. While the U.S. has pressed European leaders to take a hard line on Russia, Rome has struck a more conciliatory tone with Moscow, arguing that the West should work more closely with Russian President Vladimir Putin to resolve the crisis in Syria and elsewhere.

After holding consultations with the other parties, Mr. Gentiloni will choose his ministers and then the new government will be sworn in. The premier and his new cabinet will then be required to win confidence votes in each of Italy's two parliamentary chambers to fully take power. That will likely happen before this Thursday, allowing Mr. Gentiloni to represent Italy at an EU summit that day.

Write to Giada Zampano at giada.zampano@wsj.com

(END) Dow Jones Newswires

December 11, 2016 21:05 ET (02:05 GMT)

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