Salvini, Di Maio meet for govt talks

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Both groups fell well short of a majority and although 5-Star says it is willing to hook up with the League, it has refused to deal with the scandal-plagued Berlusconi, seeing him as a symbol of political corruption.

Anti-establishment 5-Star Movement leader Luigi Di Maio speaks to the media during the second day of consultations with the Italian President Sergio Mattarella at the Quirinal Palace in Rome, May 7, 2018.

Five Star leader Luigi Di Maio met his League counterpart Matteo Salvini to discuss a possible deal, including who would be prime minister, along with other cabinet posts. "I cannot disguise my joy and happiness that we can finally start solving Italy's problems", Di Maio said on Facebook.

The two groups, which are hostile to European Union budget restrictions and have made electoral pledges that would cost billions of euros to implement, entered into negotiations on Wednesday just as a swift return to the polls looked inevitable. Italian shares also lost ground.

Italy's anti-establishment 5-Star Movement and the populist, right-wing League appeared headed to forming a government Wednesday after ex-Premier Silvio Berlusconi, whose party is a political partner of the League's, said he wouldn't get in the way.

The election produced a hung parliament, with a conservative alliance led by the League winning most seats in parliament and 5-Star emerging as the biggest single party.

After nine weeks of political deadlock after the general elections, President Sergio Mattarella urged Italian parties on Monday to try an form an agreement soon or he would be forced to appoint a temporary "neutral" government and call for new elections as early as July.

Both parties say they want to scrap the 2011 "Fornero Reform" which raised the retirement age and required further rises over time, with the next hike - to 67 years from 66 years and 5 months - due on January 1, 2019. But 5-Star will want a big lift to welfare for the poor to satisfy its army of voters in the less wealthy south. Economists say repealing the law would cost 20 billion euros ($24 billion) a year, but opponents say it is unfair on ordinary Italians.

The League has said it wants to introduce a flat tax pegged at 15 percent.

Mattarella argued that Italy could not wait any longer for a government, given upcoming European Union obligations.

Referring to the euro, he said: "We have a currency that is capable to being a concrete anchor in worldwide relations, a role that no national currency can perform".