The ECB has warned the new Italian government to stick to EU budget rules rather than launch into new spending projects, given its €2.3 trillion debt. Eurozone finance ministers took a softer line.
But Europe's third-largest economy has a debt burden representing 132 percent of its annual economic output, which is more than double the EU permitted limit of 60 percent. Only Greece has a similar ratio.
In its biannual financial stability review published on Thursday, the European Central Bank warned: "A loosening of the fiscal stance in high-debt countries could impact the fiscal outlook and, by extension, market sentiment."
Borrowing costs in Italy pulled back from Wednesday's 14-month high on Thursday afternoon with benchmark yields on 10-year government debt at 2.32 percent — 180 basis points higher than for German 10-year bonds. But the Italian bond yields remained far below the 7 percent levels reached during the euro zone debt crisis in 2011 and 2012.
Italy's populist government: Key players
After months of negotiations, Italy finally has a government with Giuseppe Conte at the helm. Conte's swearing in ended weeks of turmoil that rocked financial markets, but concerns among Italy's EU partners remain.
Image: picture-alliance/ROPI
Conte: Novice at the helm
Giuseppe Conte, a little-known law professor with no political experience, was picked by the League and 5-Star Movement (M5S) as their candidate for prime minister. He was forced to temporarily give up his leadership bid after the parties' cabinet selection was initially blocked. However, after the two parties struck a deal with President Sergio Mattarella, Conte was eventually sworn in on June 1.
Image: picture-alliance/dpa/S. Lore
Mattarella: President with the final say
President Sergio Mattarella faced calls for his impeachment after he prevented the populist alliance from taking office. He singled out its choice for finance minister, Paolo Savona, warning that an openly euroskeptic minister in that position went against the parties' joint promise to simply "change Europe for the better." After the parties agreed to replace Savona, Mattarella gave the go-ahead.
Image: Getty Images/AFP/A. Solaro
Di Maio: Anti-austerity advocate
M5S chief Luigi Di Maio secured his party 32 percent of the vote in the March election. With the populist M5S-League coalition in power, Di Maio assumed the role of joint deputy prime minister and took over the economic development portfolio. The M5S leader has come under fire for his anti-immigration rhetoric, including calling rescue missions to save migrants from drowning a "sea-taxi service."
Image: Getty Images/AFP/T. Fabi
Salvini: 'The Captain'
Matteo Salvini is the leader of the anti-immigrant, euroskeptic League, which won 17 percent of the vote in the March election. A former MEP, he and his party have no experience in governing. Salvini has taken on the position of interior minister within Conte's Cabinet. Known for his hostile rhetoric toward immigrants and the EU, Salvini once described the euro a "crime against humanity."
Image: picture-alliance/AP Photo/A. Di Meo
Savona: Anti-euro radical
Paola Savona, initially tipped to lead the Finance Ministry, has called the euro a "German cage" and said that Italy needs a plan to leave the single currency. The 81-year-old's stance won him the backing of most Italian lawmakers but that wasn't enough to stop his appointment being vetoed. In his place steps Giovanni Tria, an economics professor without any previous government experience.
Image: Getty Images/AFP/F. Frustaci
Cottarelli: Temporary caretaker
Carlo Cottarelli was set to become Italy's caretaker prime minster after the M5S-League alliance failed to have its controversial cabinet picks approved. The former IMF economist's time in the spotlight was short-lived, however. Political uncertainty in Italy rocked Europe's financial markets and prompted Mattarella to swiftly renegotiate and approve Salvini and Di Maio's governing coalition.
Image: picture-alliance/NurPhoto/S. Lore
Berlusconi: Vanquished enabler
Silvio Berlusconi (right) and his Forza Italia entered a four-party electoral alliance including League in the March election that secured the bloc 37 percent. Berlusconi is now upset at his right-wing ally Salvini after the League leader moved to work with M5S. Berlusconi has said he would act as a "reasonable and scrutinizing opposition."
Image: picture-alliance/dpa/ANSA/E. Ferrari
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Eurozone finance ministers
Eurozone finance ministers meeting in Brussels on Thursday expressed some guarded appreciation for comments from the designated Prime Minister Giuseppe Conte, choice of the 5-Star Movement.
German Finance Minister Olaf Scholz said: "It is a very good sign that the future Italian prime minister has made a very pro-European statement," that he wants to abide by the rules jointly agreed in Europe with his government.
Conte had said on Wednesday night: "I'm ready to defend the interests of Italians in Europe and internationally, maintaining dialogue with European institutions and representatives of other countries."
Who for finance minister?
The ECB and international investors are looking to see who is named Italy's finance minister.
On Thursday, the name of 81-year-old Paolo Savona appeared to be top of the list. Savona had been a minister in the 1990s when Italy joined the eurozone but the academic and banker has since described the euro as a flawed project. In his latest book, Savona called Italy's euro entry a "historic error" and suggested a "plan B" be drawn up for Italy to leave, if necessary.
Savona wrote in his book that the eurozone was tailor-made for Germany and accused Berlin of trying to dominate Europe economically, having failed to do so militarily in World War II.
Italy's League party leader Matteo Salvini repeated his support for Savona on Thursday: "It seems that in the past he had some doubts about the use or effectiveness of the euro," Salvini said on Facebook. "He is an economist respected in the whole world ... but what has he done wrong? He has dared to say that the EU as it stands is not working properly." Salvini said he would welcome working with a man of Savona's experience.
Conte spent Thursday finalizing his proposed cabinet list which he has to present to President Sergio Mattarella before the government can be sworn in, and be put to a confidence vote in parliament.
President approves Italy's Conte as new PM: DW's Bernd Riegert
