Rome (AFP) - President Sergio Mattarella met with Italy's leading political parties Wednesday as the anti-establishment Five Stars Movement and centre-left Democratic Party looked on the brink of a deal to form a new government.
The consultations in the president's 16th-century palace in Rome were the climax of what Italian newspapers have dubbed "the craziest crisis ever" after the government collapsed earlier this month while parliament was on holiday.
The Five Star Movement (M5S) and centre-left Democratic Party (PD) have been trying to form a new coalition to govern the eurozone's third largest economy, despite having been sworn enemies until the crisis.
After a day of rollercoaster talks on Tuesday, the two sides appeared on the brink of clinching a deal Wednesday.
The PD said it had presented Mattarella with a government programme, which the M5S will have to sign off on.
Italy's 10-year bond yield fell to a record low -- below 1 percent, reflecting investor confidence -- on Wednesday as hopes of an accord grew.
There was talk in markets of "a pro-European government with a finance minister from the Democratic Party, which would be pro-market and pro-EU", said Aurelien Buffault, head of bond operations at Meeschaert Asset Management.
This was seen as "very positive" and explained why investors were piling into Italian government debt, he told AFP.
Pivotal online vote
M5S leader Luigi Di Maio has said that any deal would still have to be approved by party members in an online vote.
"Only if the vote is positive will the M5S support the proposed government project," he said.
The clock is ticking to ease the political turmoil, with Italy -- grappling with a huge debt mountain -- under pressure to approve a budget in the coming months.
If it fails to do so it could face an automatic rise in value-added tax that would hit the poorest families the hardest and could plunge the debt-laden country into recession.
Mattarella has insisted the crisis be resolved quickly, though he could give parties a bit more time for last-minute wrangling.
Former prime minister Silvio Berlusconi, leader of the centre-right Forza Italia party, said he told the president that the potential M5S-PD hook up was "dangerous" and "politically wrong".
If the PD and M5S cannot form a solid majority, the president is expected to call an early election for November.
A return to the polls will likely favour strongman Matteo Salvini, who triggered the crisis on August 8 when he withdrew his far-right League party from the governing coalition with M5S.
"Most Italians want to vote, denying them that right is undemocratic," he said Wednesday.
'Problems ahead'
Political watchers have also warned a M5S-PD deal could favour Salvini in the end, should the hastily forged accord come undone at the seams over the coming month.
Both the M5S -- which had sworn never to ally with traditional parties -- and the centre-left could lose support for getting into bed with the perceived "enemy".
Should that happen, Salvini "will be well placed to swoop to power when the Italian economy hits what the German IFO survey, and the yield curve, are flagging as serious problems ahead," said Michiel van der Veen from Rabobank.
A potential sticking point in the PD-M5S courtship was what cabinet role to offer Di Maio, who held the deputy prime minister and economic development minister posts in the previous coalition.
The parties bickered Monday and Tuesday over whether outgoing Prime Minister Giuseppe Conte -- a soft-spoken former academic chosen as a compromise prime minister last year -- should lead a new coalition.
But the centre-left party appeared to have had a change of heart -- news which cheered not only the M5S but also US President Donald Trump, who enthusiastically gave Conte his endorsement on Twitter.
