Italy's Prime Minister-designate Giuseppe Conte gave up on efforts to form a government on Sunday after the president apparently rejected his pick for the economy ministry, increasing the likelihood of another election this year.
Cottarelli's likely appointment as prime minister has already attracted the wrath of the anti-establishment Five Star Movement and nationalist League, which have denounced a "premeditated" strike from Mattarella and European "lobbies" against their proposed coalition government. A new vote could be held on September 9, newspaper Corriere della Sera reported on Monday.
There is now a real argument between the president and the populists about Italy's position in the European Union, he adds.
"They've replaced a government with a majority with one that won't obtain one", said Five Star leader Luigi Di Maio to supporters at a rally near Rome.
Di Maio said President Sergio Mattarella had caused an "institutional crisis".
Markets were relieved at not having to immediately deal with the likelihood of a eurosceptic government.
A technical government will still be subject to votes of confidence in both houses of parliament, and the 5-Stars and League made clear Cottarelli wouldn't have their support.
Carlo Cottarelli became known as "Mr Scissors" for his cuts to public spending in Italy. Either EU rules change or it makes no sense for Italy to remain a member of the bloc, he said.
Mattarella opposes Savona's views on the EU's monetary policy. None of the parties obtained the majority of votes required for the government formation.
The euro gained ground on the news, adding 0.4 percent against the USA dollar on Monday morning and ticking up against most other major trading partners as well. The common currency had dropped for six straight weeks amid the political uncertainty.
"There can be many potential twists in the Italian political situation and we would be wary of reading too much into this latest development", said Esther Maria Reichelt, an FX strategist at Commerzbank in Frankfurt. "For now it's more relief that Italy will not-for now at least-have an avowed eurosceptic finance minister".
Mr Mattarella's office declined to reveal his plans.
Five Star had been trying to form a government with the right-wing League. The Italy-Germany 10-year yield spread reached the widest since 2014 on Friday. Although mainly ceremonial, the president does have the power to appoint heads of government and dissolve parliament.
For now, political chaos in Italy reigns supreme. Mattarella is staunchly pro-Europe.
"We are ready to mobilize to defend democracy and our institutions".
Mr Cottarelli said: "I'll present myself to parliament with a programme which - if it wins the backing of parliament - would include the approval of the 2019 budget".
But the BBC's James Reynolds in Rome says such an arrangement is unlikely to last and early elections may have to be called.
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Greenwood also asked the state's adult protective services agency to investigate the case further, reported Syracuse.com. He told reporters outside the court that it sounded like the judge was ordering him to move out without enough notice.