Stock markets in Italy and globally had plunged and Italy's borrowing rates soared earlier in the week when it appeared Italy was heading to new elections after President Sergio Mattarella vetoed the prospective partners' first pick for economy minister, collapsing the proposed coalition.
The two anti-establishment parties, the 5-Star Movement and League, had abandoned plans to jointly take power at the weekend after the president blocked their proposed cabinet lineup. He was confronted by a group of recently laid-off workers protesting outside parliament.
"You have to trust all of us", Conte assured them, after listening to the workers' plight. The prospect of a new vote, however, roiled financial markets in Italy, which is Europe's third-largest economy, and around the world.
The uncertainty rose after President Sergio Mattarella's designation of Mr Cottarelli, a former International Monetary Fund official, to head a politically neutral government failed to calm markets. They shifted their euroskeptic candidate for economy minister to another ministry and installed a more mainstream economist in his place.
Italy is advancing swiftly towards a populist government on its second try after 5-Star Movement and League leaders announced a compromise deal.
Europe's populists cheered, with French far-right leader Marine Le Pen, who shares the League's firm anti-immigrant stance, tweeting: "It's a victory of democracy over intimidation and threats from the European Union". Nigel Farage, a British force behind the successful Brexit movement, advised Italy's populists to "stay strong or the bully boys will be after you".
It was a reference to European Union officials, who have made clear in recent days their concerns - in occasionally undiplomatic terms - about Italy's euroskeptic direction.
"In a conference earlier on Thursday, the president of the European Commission, Jean-Claude Juncker, was reported saying that Italians had to work more and fight corruption to improve the situation in the country's impoverished south".
Juncker said Italy must not suffer the same fate as thrice-bailed out Greece whose dignity was "trodden under foot" by its creditors when left-wing Prime Minister Alexis Tsipras took office in 2015. "The reality is that they do not need us in authorities". "But don't play this game".
League leader Matteo Salvini, meanwhile, had a series of rallies in northern Italy.
"The uncertainty over our position has alarmed investors and savers both in Italy and overseas", Mattarella said, adding: "Membership of the euro is a fundamental choice".
Italy's two main anti-establishment parties could yet form a government, after the man nominated as interim prime minister said politicians, rather than technocrats like himself, might be able to steer the country out of deadlock.
The center-right alliance grouped the League with ex-Premier Silvio Berlusconi's Forza Italia and the smaller right-wing Brothers of Italy.
The ministers feature a mix of 5-Star and League loyalists and a political neophyte in the form of Premier Giuseppe Conte, who was still teaching his law classes at the university in Florence up until Thursday.
Financial markets have calmed amid increasing signs that Italy may avoid imminent elections after the president gave two populist parties time to figure out whether they can agree on an alternative to an anti-euro economy minister.
Republic Day commemorates the day, June 2, 1946, when Italians voted in a referendum to abolish the monarchy in favor of a republic, Italy's first.
Lorne Cook and Raf Casert contributed from Brussels, and Angela Charlton from Paris.
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