Italian parties agree government program, say no threat to euro

Italian parties agree government program, say no threat to euro

"We will need to renegotiate European Union agreements to stop Italy suffocating", League leader Matteo Salvini said on Saturday after a day of talks with his 5-Star counterpart Luigi Di Maio.

A definitive programme should be completed by the end of the day, Salvini said, adding that the two parties would update Italian President Sergio Mattarella on their attempt to build a government by Monday.

The joint document will demand the ECB forgives Italy of €250 billion Italian benchmark BTP bonds bought under the bank's so-called "quantitative easing" programme to help reduce Italy's public debt. They have both vowed to scrap an unpopular pension reform - a move that would punch a 15-billion-euro hole in state coffers.

For instance, the EU's Migration and Home Affairs Commissioner Dimitris Avramopoulos said he hopes Italy's policy on asylum seekers does not change under the new government.

"There is a real danger that the new Italian government could, through its irresponsible economic policies, set the stage for the next euro zone crisis", a second senior official involved in euro zone policy-making said.

Bond markets have fallen this week in anticipation of an agreement with the 10-year spread reaching 158 basis points earlier on Thursday.

As of Wednesday morning, officials involved in the talks insisted that Five Star and the League were finally close to a deal, though it was still unclear whether the two sides had settled on a choice for prime minister. 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.

More news: Ebola cases in DR Congo rise to 14
More news: US Warns Russian-German Gas Pipeline Risks Triggering Sanctions
More news: UN's Zeid: Israel keeps Gaza residents "caged in a toxic slum"

With neither Di Maio nor Salvini willing to cede the premiership to the other, they need to find someone else palatable to both of them whom Mattarella could tap to form the next government.

The Commission, with just a year of its term remaining, "can't really do much other than put Italy's finances under greater scrutiny, and markets don't care about that", he said.

European Union leaders meeting in Sofia on Wednesday are likely to be concerned about the rhetoric coming from the parties that could form a new Italian government as early as next week.

"With the M5S/LN government, the underlying problems of the Italian economy, including low growth, inflexible labor markets, inefficient banking system and public administration will not be tackled, in many cases only worsened", Nordea Chief Strategist Jan von Gerich said in a note to clients.

That document contains a proposed "conciliation committee", a structure parallel to the parliament which would be responsible for settling any disagreements between two political forces that have divergent ideas on issues like immigration and Italy's relations with Europe.

Berlusconi has refused to govern with the 5-Stars, who he regards as "more risky than communists". The policy programme will probably be published on Thursday, 5-Star said.

It is likely to cause concern in Brussels and at European Central Bank headquarters in Frankfurt and might also dismay Italian President Sergio Mattarella, who has stressed the importance of the country maintaining a strong, pro-European stance. Each party plans to consult its supporters over the weekend to see if they back the nascent government pact.

Related Articles