Napolitano mulls Italy government as he takes oath

ROME (AP) -- President Giorgio Napolitano headed Monday into his unprecedented second term with the daunting task of trying to find a candidate who can form a government two months after national elections left Italy with no clear winner and an increasingly discredited political class.

The 87-year-old Napolitano was taking his oath of office later in the day and also addressing the nation, presumably about the need to bring recession-mired Italy out of its political paralysis and the euro-zone's third-largest economy back on the path of financial reforms and growth.

He was re-elected Saturday after politicians failed to find a new presidential candidate who could win a majority of Parliament and regional voters. The divisive process resulted in the implosion of the center-left Democratic Party, whose leader resigned. It also galvanized the anti-establishment 5-Star Movement, which has campaigned on sending Italy's entire political class packing.

Investors were relieved by the re-election of the widely respected Napolitano. The main stock index in Milan rose 1.8 percent, the strongest gain in Europe. Italy's government borrowing rates fell in bond markets, suggesting greater investor confidence in the country's financial future. The benchmark 10-year bond rate fell 0.13 percentage points to 4.05 percent.

"We can now celebrate the unblocking of the situation," said Edoardo Luini, a market analyst at Trading Room Roma. "It is not the best solution, but it was the only possible one — or at least the most convenient."

Analysts suggested Napolitano's hand is stronger now than when he first asked Democratic leader Pier Luigi Bersani to try to form a government. That initial overture came after Bersani's forces won control the Chamber of Deputies, but not the Senate, in Feb. 24-25 elections. Bersani failed, leading to the current stalemate.

With a new seven-year mandate, Napolitano can dissolve Parliament and call new elections, something he couldn't do in the final months of his first term. It's a threat that could help him as he sounds out political parties to try to find a viable premier who can form a government and win a mandatory Parlimentary vote of confidence.

"The election of Napolitano is good news," said Unicredit analyst Luca Cazzulani in a statement. Napolitano has the skills and standing to mediate, he said, and his election "makes the timely formation of a new government more likely."

Bersani's center-left, however, is in shambles after its members failed to rally behind Bersani's initial choices for president. Eventually, they closed ranks to re-elect Napolitano, along with the center-right People of Freedom party of ex-Premier Silvio Berlusconi. The 5-Star Movement of comic Beppe Grillo denounced Napolitano's election as a "coup." Grillo's populist movement won 25 percent of the February vote, giving voice to Italians fed up with Italy's political class.