Struggling to agree on government pact, Italy's League turns on EU

Adjust Comment Print

The joint programme of the two populist parties set to take power, the Northern League and the 5-Star Movement, would, if fully implemented, constitute "the biggest shake-up" of Italy's economy "in modern times", says Wolfgang Munchau, of the Eurointelligence think tank, on Reuters.

Bloomberg's John Follain reports on the talks between Five Star leader Luigi Di Maio and League chief Matteo Salvini. Berlusconi, 81, has warned the 5-Stars are unsafe for Italy and its democracy.

Before the election, 5-Star and the League both blamed the EU's fiscal rules for Italy's chronically weak growth and rising poverty, and promised to defy Brussels by spending more if they managed to enter government.

President Mattarella must agree to the parties' prime ministerial nominee before the candidate seeks the approval of parliament.

The parties still haven't said who they'll nominate as prime minister.

Salvini said the new premier would be neither him nor Di Maio.

More news: Guatemala Inaugurates Embassy In Jerusalem After US

A draft of the accord reviewed by Reuters earlier on Thursday spelt out a spending plan that would breach European Union rules on fiscal discipline: cutting taxes, increasing welfare payments for the poor and scrapping an unpopular pension reform.

The yield premium investors demand for holding Italian bonds over top-rated German peers jumped to its highest since January as investors fretted about a confrontation between a new government and the European Central Bank over debt forgiveness. With a euro-sceptic government in Italy, the euro zone's third biggest economy, they could be effectively frozen, officials and economists said.

Brussels has called on the next Italian government, which is likely to be formed by Eurosceptic parties, to remain on the "European path" and not tear up the EU's strategy for controlling migration.

The news also pushed Italy's debt insurance costs in the five-year credit default swaps (CDS) market to 102 bps, the highest since end-March, according to IHS Markit.

Yields on benchmark USA bonds rose on Thursday to their highest level in about seven years, pushing the US dollar to a four-month peak against the yen, while oil prices eclipsed $80 a barrel for the first time since November 2014.

Investors note that the European Central Bank has provided a "comfort blanket".

More news: Thomas Partey's Atletico Madrid Thrash Marseille To Win Europa League

Other policies are said to include overhauling parliament and giving more autonomy and funding to the regions, as well as a funding pact meant to "bring dignity back to Rome" in a bid to resolve the capital's long-running administrative issues. If formed, the government will then look to battle the European Union establishment.

President Sergio Mattarella, who has repeatedly stressed the importance of maintaining a strong, pro-European stance, may also be dismayed.

The duo will be under pressure to deliver the costly economic promises made to an austerity-weary electorate, such as cutting taxes, introducing a universal basic income and scrapping a 2011 pension reform that increased the retirement age.

Among other policies yet to be approved as of Tuesday evening were also whether asylum centres should "fully respect" migrants' human rights, and the radical proposal to have just two tax brackets - 20 percent and 15 percent.

Corriere della Sera estimated that the package might cost as much as 100 billion euros. Neither Salvini nor Di Maio want the other to get the job, but they have yet to find a mutually acceptable alternative figure.

More news: Lawsuit says drug company trivialized addiction risk