Italy could face an election as early as late summer as turmoil over the country's leadership continues.

The president Sergio Mattarella has asked the former economist Carlo Cottarelli to lead a caretaker government until a fresh vote can be called.

Mr Cottarelli said that it could take place soon after the August holiday or, at the latest, at the start of 2019.

The country has now been without a government since early March, after an election failed to return a clear winner and led to a political impasse.

Markets have begun to take fright, with bond markets suggesting investors are becoming more cautious about lending to Italy.

Matteo Salvini's League has made stunning gains in recent regional elections. Credit: AP

The development after proposals for what would have been Western Europe’s first populist government were scuppered by the President.

A proposed coalition government was formed between the anti-establishment Five Star Movement and right-wing nationalist League.

However, both groups had insisted on appointing anti EU skeptic Paolo Savona as economy minister, which was voted by Mr Mattarella.

Populist leaders have now said they will use any new vote as an effective referendum on the European Union, financial markets and eurozone membership.

“This isn’t democracy, this isn’t respect for the popular vote,” railed Matteo Salvini, a firebrand populist from the right-wing League.

“It’s just the last gasp of the strong powers who want Italy as a frightened, precarious slave.

“The next elections will be a plebiscite: the people and real life versus the old castes and the ‘Lords of the Spread’,” he added, referring to financial speculators.

President Sergio Mattarella refused to submit to populist demands (Fabio Frustaci/ANSA via AP) Credit: AP

Milan-based economist Nicola Nobile said it appeared the upcoming election could shape up as a “de facto referendum on Italian membership in the eurozone.”

Sharing Mr Salvini’s anger was 5-Star Movement leader Luigi Di Maio, the populist who had hoped to govern with him.

Mr Di Maio repeatedly called for Mr Mattarella’s impeachment for vetoing their pick for economy minister.

He also urged those angry like him to rally in Rome on Saturday.

The gathering, likely to double as a campaign rally, coincides with a national holiday celebrating the Republic and features a military parade and VIP reviewing stands in the heart of the capital.

Opposition Democrats contended the populists, by calling the rally, wanted to stage the equivalent of the 1922 March on Rome that paved the way for Benito Mussolini’s ascension to power and his Fascist regime.

“The campaign that’s being prepared will be frightening,” wrote La Stampa political commentator Marcello Sorgi.

Luigi Di Maio, the populist who had hoped to govern with Matteo Slavin. Credit: AP

When Italians voted on March 4, the result was a Parliament with no clear-cut majority. As weeks passed without a government, Mr Mattarella warned he would reluctantly appoint a nonpolitical Cabinet to take the country to fresh elections if a viable coalition could not be forged.

Mr Cottarelli pledged his government would uphold Italy’s “essential” role in both the EU and in the eurozone and he promised “prudent management of our public accounts”.

But markets have remained on edge, with the prospect of anti-euro political sentiment suddenly gaining traction in Italy and Cottarelli’s own tenure seen as limited, with another election approaching.

The government’s benchmark borrowing rate increased further, the Milan stock market slipped and the euro weakened against the dollar.

Mr Cottarelli, who earned the nickname “Mr Scissors” with his reputation for finding fat to trim in public spending, said elections could come as soon as “after August” if his Cabinet fails to get the required confidence votes in both chambers of Parliament.

Supporters of Five-Star Movement in March. Credit: AP

The numbers are not on his side. Immediately giving him a thumbs-down were the 5-Stars and the League, whose lawmakers together have the votes to sink his government.

Also vowing to vote against Mr Cottarelli were two of Mr Salvini’s campaign alliance partners: Forza Italia, the center-right party of former Premier Silvio Berlusconi, and a smaller far-right party.

Instead, the populists were already looking to a new attempt to gain power.

Political analyst Massimo Franco said Mr Salvini’s attempt to force Mr Mattarella’s hand over the ministry appointment appeared to be a “provocation” aimed not at forming a populist government but to “possibly make it fail before it started.”

That way, Mr Salvini, whose League has made stunning gains in recent regional elections, could try for a stronger mandate to govern after new elections.