ROME (Reuters) - Italy’s anti-establishment 5-Star Movement proposed a German-style governing contract with two of its rivals on Wednesday as formal talks began on forming a government, one month after an election ended with a hung parliament.

FILE PHOTO: Anti-establishment 5-Star Movement leader Luigi Di Maio at a news conference in Rome, March 13, 2018. REUTERS/Tony Gentil/File Photo

The inconclusive March 4 vote left President Sergio Mattarella to coax sworn adversaries towards a coalition deal. The process could take weeks and still end in deadlock, which would force yet another vote, prolonging instability in the euro zone’s third-largest economy.

In the election, a centre-right alliance taking in the far-right League and four-time prime minister Silvio Berlusconi’s Forza Italia won the most seats, followed by the 5-Star and then the PD, but no group can govern alone.

5-Star prime ministerial candidate Luigi Di Maio, who heads the biggest single party in parliament, made overtures to both the centre-left Democratic Party (PD) and League leader Matteo Salvini, but with strict conditions.

So far, the PD - still influenced by its defeated former leader and ex-prime minister Matteo Renzi - has closed the door to any alliance with 5-Star, and Salvini has refused to break with his centre-right allies.

“The League must decide which side it’s on: whether it wants to help 5-Star change the country, or whether it wants to stay anchored to the past and to Silvio Berlusconi, a man who had a chance to change Italy and didn’t,” Di Maio wrote on the movement’s official blog.

“The PD is also called on to choose,” Di Maio said, between Renzi’s line or “to work for the citizens”.

“We hope to meet the parties as soon as possible to understand what their proposals are, and whether we can start writing this contract,” he said.

While Salvini has said he will talk to 5-Star, he rejected “vetoes or commands”, while Forza Italia issued a statement renewing its commitment to the centre-right alliance and rejecting “any form of dialogue or government with whomever makes unacceptable vetoes”.

The centre-left PD’s acting secretary, Maurizio Martina, accused 5-Star of trying to divide his party, saying on Twitter: “We won’t play these games.”

COSTLY PROPOSALS

A 5-Star-League coalition would be the most alarming to investors. 5-Star has called for a “universal income” for the unemployed, while the League is seeking drastic income tax cuts.

Both proposals would increase Europe’s second-largest debt pile as a percentage of output and defy European Union budget rules.

The League also wants wholesale expulsions of migrants and is the only large party that wants Italy to dump the euro, but any deal to govern would exclude abandoning the common currency.

As part of any deal with either the League or the PD, 5-Star envisages Di Maio becoming prime minister and the partners drafting a list of policies similar to the 177-page document hammered out between German conservatives and Social Democrats to secure Angela Merkel a fourth term as chancellor earlier this year. Those negotiations took months to yield a deal.

On Wednesday Mattarella separately met the speakers of both houses of parliament and Italy’s former president Giorgio Napolitano for advice on how to proceed. He also met leaders of the small parliamentary groups at the presidential palace.

Leaders of the largest parties are due to meet Mattarella on Thursday. Those in the centre-right alliance will meet him separately, a sign of the divisions already existing within the bloc. Berlusconi has indicated he will accompany the Forza Italia delegation.