"Today we were prevented from forming a government", Five Star Movement chief Luigi Di Maio told his followers in an angry video on Facebook, calling Mattarella's stance "incomprehensible" and accusing "ratings agencies and banking lobbies" of undue influence over Italian politics.
In recent days, the populist coalition had acceded to all of President Mattarella's requests to be able to launch the new government and the president had accepted the nomination of Giuseppe Conte, a relatively unknown university professor, as prime minister.
Italy's prime ministerial candidate Giuseppe Conte gave up on Sunday his mandate to form a government after talks with the president over his cabinet collapsed.
Federica Mogherini says she's convinced that President Sergio Mattarella was serving the Italian people and the European Union by forcing the end of the proposed 5-Star Movement-League government.
His appointment was opposed by the current Italian President Sergio Mattarella. Mattarella opposes Savona's views on the EU's monetary policy.
A technical government will still be subject to votes of confidence in both houses of parliament, and the 5-Stars and League made clear Cottarelli wouldn't have their support. "We may have been witnessing the end of the 2nd republic in Italy".
Mattarella said he was considering political party leaders' request for another election and would announce his next move "in the next hours".
Row over economy minister pick threatens new Italian government
"The adhesion to the euro is a choice of fundamental importance for the perspectives of our country and our youth", Mattarella said.
Before Conte or Mattarella had finished their meeting, far-right League leader Matteo Salvini said the only option now was to hold another election, probably later this year, without directly confirming the president's veto.
"If there's not the OK of Berlin, Paris or Brussels, a government can not be formed in Italy".
Mr Di Maio called for impeachment under article 90 of the constitution, which allows parliament to demand a president step down based on a simple majority vote.
European markets will be watched closely this week to see how the fallout affects the euro currency along with Italian stocks and bonds. The government of change could not be born; the Lords of [bond] Spread and banks, the ministers of Berlin, Paris and Brussels did not agree.
However, market participants warned that the rally could prove short-lived as the League, under Matteo Salvini, might improve its performance from the last, inconclusive elections in March that led to months of political wrangling.
"I have given up my mandate to form the government of change", said lawyer and political novice Giuseppe Conte, 53, plunging the country into a political crisis almost three months after March's inconclusive general election. The constitutional court would then be called to decide whether to impeach or not.More news: LeBron James scores 46 as Cavaliers force Game 7 in Boston
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