Emerging coalition represents biggest challenge for bloc since Brexit
It poses the biggest challenge to the EU since the UK voted for Brexit two years ago. Italy's eurosceptic and anti-establishment parties - the far-right League and the 5-Star Movement - have agreed the basis for a governing accord.
The policy agenda of the emerging coalition would slash taxes and ramp up welfare spending.
One expert says EU leaders have a balancing act on their hands.
Mario Telo, from the Royal Academy of Science in Brussels, told Euronews: "The room for a compromise exists: provided the leadership of Macron and Merkel is able to contain the conservative approach of Holland and Finland on one hand and to make some gesture in favour of Italy. For instance, the reform of Dublin migration regulation and, secondly, give the signal of a change in economic policy towards growth and employment."
One Socialist Belgian MEP says the EU needs to find its focus.
"Let's stop simplifying the debate by saying that there are pro-Europeans and anti-Europeans, because in the pro-Europeans there are ultra-Liberals who want even more a wild market and then there are those who want to regulate things," said Marc Tarabella.
"I can understand some anti-Europeans, who see that we are sacrificing agriculture in some countries, or industry, and I think we need to have a real pro-European strategy at European level. A true European economic patriotism, that we have lost a bit."
Commenting on Italy's developments, French president Emmanuel Macron has said he sees reasons for both doubt and confidence.