Italy PM-designate Enrico Letta agrees new government Published duration 27 April 2013

media caption President Napolitano (L) says the government headed by Enrico Letta (R) will have the support of both houses

A deal on the formation of a new government has been reached in Italy, ending two months of political deadlock since the general election.

The agreement was announced after Prime Minister-designate Enrico Letta met President Giorgio Napolitano.

The coalition brings together Mr Letta's Democratic Party (PD) and the People of Freedom party (PDL) of former PM Silvio Berlusconi.

The swearing-in is to take place on Sunday at 11:30 local time (09:30 GMT).

Mr Berlusconi had said he would not be a minister, but had pushed for leading figures from his party to be given top posts.

Angelino Alfano, the PDL's secretary, will become deputy prime minister and interior minister in the new government.

Among the other key appointments proposed, Bank of Italy director general Fabrizio Saccomanni will head the powerful economy ministry and former European Commissioner Emma Bonino will become foreign minister.

The formation of the new government brings to an end a political deadlock that has unnerved financial markets since February's inconclusive election.

President Napolitano said the government would have the support of both chambers of parliament.

"I hope that this government can get to work quickly in the spirit of fervent co-operation and without any prejudice or conflict," he said.

"It was and is the only possible government."

The BBC's David Willey, in Rome, says the new government has to deal with a rapidly declining economic situation, rising unemployment - particularly among under the 35s - and lack of growth, despite some draconian austerity measures passed by the previous government of technocrats.

Berlusconi charges

Mr Letta, 46, is considered a moderate within the PD and is linked to Mr Berlusconi through his uncle, Gianni Letta, who is one of Mr Berlusconi's closest aides.

Mr Berlusconi is still contesting charges of tax fraud and sex with an underage prostitute, but recent opinion polls suggest his popularity has increased, giving him greater bargaining power.

Mr Letta expressed "sober satisfaction over the team we put together".

He has said he will shift the focus away from austerity to resolve Europe's economic problems.

His candidacy for prime minister emerged after the PD leader, Pier Luigi Bersani, announced his resignation following a party rebellion over his choice for Italian president and his refusal to work with Mr Berlusconi.

The third strongest force to emerge from the Italian election, the Five Star movement led by former comedian, Beppe Grillo, has refused to take part in a coalition with the two main parties.

He likened such a coalition to "an orgy worthy of the best of bunga bunga" in a barb directed at Mr Berlusconi's renowned private parties.