Italian PM to set seal on new government, unveil new cabinet

By Giselda Vagnoni

ROME (Reuters) - Italy's head of state is set to sign off on a new government on Wednesday after two rival political parties agreed an unlikely coalition that is expected to improve ties with the European Union and adopt a softer stance on immigration.

Prime Minister Giuseppe Conte, who led the outgoing administration, is expected to unveil his new cabinet lineup and seek a new mandate from President Sergio Mattarella as early as Wednesday morning.

The alliance between the anti-establishment 5-Star Movement and the center-left Democratic Party (PD), formerly sworn enemies, followed a month of political upheaval triggered by the sudden collapse of the previous ruling alliance.

The far-right League party of outgoing Interior Minister Matteo Salvini pulled out of its coalition with the 5-Star party, declaring it unworkable and calling for early elections in the hope that Salvini could return to power a prime minister.

Salvini's gambit backfired badly, ushering in a new alliance that is expected to soften his confrontational stance on EU budget rules, which he blamed for Italy's weak economy, and his crackdown on migrants arriving by boat from Africa.

Once Mattarella agrees to Conte's cabinet, the prime minister will then have to win confidence votes in both houses of parliament before the government can officially start work.

5-Star and PD unveiled on Tuesday a shared, 26-point policy program for their mooted coalition, putting an expansionary 2020 budget at the top of their agenda but pleasing markets with a pledge draft a budget that would not endanger public finances.

The coalition cleared its final hurdle on Tuesday night when members of 5-Star approved the marriage in an online vote.

The key post of economy minister may go to the PD's Roberto Gualtieri, now head of the European Parliament's economic affairs commission, or to Dario Scannapieco, a former Treasury official who is vice president of the European Investment Bank, 5-Star and PD sources said.

Another name being considered for the job is former Bank of Italy Deputy Governor Salvatore Rossi, the sources said.

5-Star leader Luigi Di Maio, who served as deputy prime minister, industry minister and labor minister in the previous administration, may become foreign minister in the new government, the sources added.

PD's president and former prime minister Paolo Gentiloni could be named as EU commissioner.