Italy's new interim prime minister designate will try to form a new government on Tuesday.
Carlo Cottarelli's main function is to get the budget passed and to steady the markets after weeks of uncertainty.
The 64-year-old former senior International Monetary Fund (IMF) official, known as “Mr Scissors” for his role in imposing spending cuts, was named as Italy’s premier on Monday after President Mattarella vetoed the would-be coalition put together by two populist parties.
Cottarelli tried to soothe fears over the crisis in the eurozone’s third-largest economy on Monday. However, markets responded negatively: stocks were hit and the price of Italian debt shot up.
More elections expected
The anti-establishment Five Star Movement and far-right League, which have a majority in parliament, have vowed to block Cottarelli’s government. If the new prime minister loses a vote of confidence, then fresh elections are expected soon.
Their attempt to form an administration failed after the president refused to accept their choice of a Eurosceptic finance minister, saying it jeopardised Italy’s membership of the euro. The populists denied it.
Many in Italy are annoyed at the presidential appointment and think the populist parties who came out top in the last election in March should have had more time to form a government.
"I think Italians had expressed themselves and what happened seems to be wanting to cancel the sign of this expression, so, even if I don't really know Cottarelli, we are left with a bitter taste in the mouth," said one Rome local.
"The situation is complicated, I don't know what the best scenario is, but let's hope for the best and that Cottarelli will be able to lead us to new elections."
Those elections are expected by early 2019 at the latest, if not sooner.
Analysts say they are likely to be fought over Italy's role in the European Union and the eurozone.
The country’s political crisis has been described as the most serious since World War II, threatening the stability of both Italy and the single currency.
Some commentators predict the president’s move in blocking a populist coalition will backfire, prompting an anti-establishment backlash and an even stronger vote next time.
Sergio Mattarella’s supporters say he was simply carrying out his constitutional duties.
The events have polarised opinion in Italy and abroad. French President Emmanuel Macron praised Mattarella’s “courage” and “great spirit of responsibility”, while German Chancellor Angela Merkel said “of course we want to work with each government but we have principles within the eurozone”.
However, French National Front leader Marine Le Pen denounced what she called an EU “coup d’Etat”. Former Greek finance minister Yanis Varoufakis has warned that the formation of another “technical” government in Italy is a “fantastic gift” to the far-right League.
Latest opinion polls suggest support for Five Star remains consistent at above 30 percent, while backing for the League has risen from 17 percent in the March elections to around 22 percent now.