Italy’s anti-system parties close to deal

Thorny issue of who’ll become prime minister still to be resolved

ITALY’s two anti-system parties yesterday appeared on the verge of clinching a deal to form a coalition government after 2½ months of stalemate, rattling markets with radical ideas to free up billions of euros for tax cuts and welfare.

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.

“It would be crazy to give up at the moment of truth,” League leader Matteo Salvini said in a live video stream on Facebook, adding he would not be intimidated by negative reaction from financial markets or attacks from the media.

“The more they insult us, the more they threaten us, the more they blackmail us, the more desire I have to embark on this challenge,” he said.

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.

There was still no word on the thorny issue of who would be prime minister. Neither Salvini nor 5-Star leader Luigi Di Maio want the other to get the job but they have yet to propose a mutually acceptable alternative figure.

In a draft coalition programme leaked on Tuesday, the parties said they planned to ask the European Central Bank (ECB) to forgive €250 billion (R3.68 trillion) of Italian debt purchased under the eurozone central bank’s quantitative-easing (QE) programme.

Italian bond yields and the cost of insuring Italy’s debt against default jumped on the news even after Claudio Borghi, the League’s economics chief said the request for debt forgiveness was never in an official draft of their programme.

He said the leaked version was “only some notes”, while what the parties want is for the EU not to account for bonds bought by the ECB under QE when calculating a country’s official debt levels for the purposes of the EU Stability Pact.

The euro fell to a five-week low against the dollar, and Italy’s benchmark 10-year bond was set for its biggest one-day gain since July last year.

The ideas in the draft programme underscore the great difficulties in finding the resources needed to pay for promises the two rival parties made to their voters during the campaign.

The League has pledged to introduce a flat tax rate of 15%, which would lower tax revenues by €80bn a year, according to some estimates, while 5-Star has pledged new welfare payments for the poor costed at €17bn.

They have both vowed to scrap an unpopular pension reform, a move that would punch a €15bn hole in state coffers.

Italy already has an enormous debt worth more than 130% of annual output, second only to Greece in the EU. The bloc’s budget rules require it to cut the debt pile aggressively under the “fiscal compact”, which both parties want scrapped.

Di Maio said “the recipe to lower public debt is by investments and expansionary policies”.

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

Both groups have a history of Euroscepticism. 5-Star has moderated its position considerably in the last year, rowing back on a previous plan to hold a referendum on Italy’s membership of the currency bloc.

However, the League still wants to leave the eurozone as soon as politically feasible.

They also share an anti-establishment sentiment that has taken root in Italy but which has international parallels such as Britain’s vote to leave the EU and the US election of President Donald Trump.

Each party plans to consult its supporters over the weekend to see if they back the nascent government pact.

The policy programme will probably be published tomorrow, 5-Star said. – Reuters