As the populist Five-Star Movement and the far-right, eurosceptic League party Friday continued their last-ditch talks on a government after Italy's inconclusive March election, European Parliament president Antonio Tajani warned that Europe was keenly observing events.
"Italy is a key country in the European Union and everyone is watching events in our country with great interest," Tajani told Italy's annual 'State of the Union' meeting in Florence.
Problems that Italy must tackle include its massive public debt pile and sky-high youth unemployment rate, especially in the economically underdeveloped south of the country, Tajani stated.
As Britain prepares to leave the EU next year "our country needs to play an increasingly meaningful role" in Europe, he said.
"To counter-balance Franco-German hegemony, Italy and Spain need to play an increasingly meaningful role - and this is among the challenges facing a new government."
If a deal can be reached between Five-Star and the League, it will mark the first time that a founding member of the European project is led by populist, anti-EU forces.
Negotiations were due to continue over the weekend and a new government could be announced on Monday.
The prospect of a Five Star-League government will be of deep concern to Brussels as well as to financial markets.
Promises of a minimum income for millions of people and far lower income tax rates threaten to further strain Italy’s finances and could spark a confrontation with the EU over budget rules.
