Italian parties agree basis for government deal, say no threat to euro

Italian parties agree basis for government deal, say no threat to euro

Troy Powers
May 18, 2018

The partnership between the League's Matteo Salvini and Mr. Di Maio would represent a blow to mainstream European political parties across the continent.

The far-right League and the 5-Star Movement have been discussing a common policy agenda for a week after a March 4 election ended in a hung parliament, but just today, the two anti-system parties have completed the joint policy programme for a coalition government and have passed the document to leaders for their approval.

Both leaders said the final policy document would be put to their voters before being submitted to the president, Sergio Mattarella, who has the final say on the contract, prime minister and cabinet lineup.

But this week may go down as the moment when Mr Salvini and Mr Di Maio solidified their alliance on a platform - and tone - of conflict and defiance towards Brussels.

The opposition Democrats have warned that the League's vow to drastically lower taxes to a flat 15-percent rate and the 5-Stars' promise of subsidies to the poor will drastically drive up government borrowing.

A draft of the accord reviewed by Reuters earlier on Thursday spelt out a plan to cut taxes, increase welfare payments for the poor and scrap an unpopular pension reform which seems incompatible with European Union rules on fiscal discipline.

There were tremors across Europe on Wednesday after a draft of their plan published by Huffington Post Italy revealed proposals to ask the European central bank to wipe out €250bn of debt as well as set up procedures allowing EU member states to exit the euro.

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Until now, she said, " many European Union leaders didn't see to what extent the issue would become so important". Meanwhile, EU imports from Iran increased by 83.9 percent past year .

Despite Borghi's comments, Italy's five-year credit default swaps were up 5 basis points to their highest levels since the end of March.

A previous draft dated May 14 and leaked to the press said Italy should request a 250-billion-euro debt cut from the European Central Bank, which prompted the Milan-based stock exchange to plunge by 2.32 percent and pushed the spread to 151 basis points (from 130 points Tuesday) at Wednesday's close. It would make "a mockery" of the eurozone's fiscal rules, whereby the government must keep a tight lid on its budget deficit to start tackling its unsustainable debt pile of 130% of GDP. The spread is a "cynical board game of high finance", he said. Salvini and Di Maio have yet to say who will be prime minister, and newspaper Corriere della Sera reported they may take turns.

European Union leaders meeting in Sofia on Wednesday are likely to be concerned by the rhetoric of the parties, which could form a new Italian government as early as next week.

Matteo Salvini (centre), the leader of Italy's far-right League party.

"We'll need to cope together with the European challenges as we do with other EU leaders, not all of them are ideal", one of the EU officials said. 5-Star has moderated its position considerably in the past year, rowing back on a previous plan to hold a referendum on Italy's membership of the currency bloc.

Both parties in the potential coalition arrangement have agreed to crack down on immigration to Italy, but exactly how and to what extent is believed to be one of the areas still up for agreement. However the League still wants to leave the euro zone as soon as is politically feasible.

"They are on autopilot, a very clear way of managing their purchases and reinvestments but as we've seen the market can't do the work themselves in terms of repricing and telling politicians what they think their decision can be worth in terms of cost of debt".