Posts Tagged ‘Italy’

EU panic over Italian populism only exacerbates tension

May 22, 2018

Italy’s populist government did not just fall from the sky — it was elected. And the incoming leaders could prove to be an explosive force for the European Union. DW’s Bernd Riegert asks: What’s next?

By Bernd Riegert
Commentary

    
Italy flag with a question mark (imago/R. Peters)

Italians fundamentally distrust their politicians, to whom many disparagingly refer as “the caste.” It’s a familiar story: Italy’s politicians rarely fulfill the promises they make during election campaigns. Once they are in power, it’s often about what’s doing best for themselves. Those have long been the iron laws of political life in Italy. Now, populists from the left and far right are set to take power.

They are promising historic change, a revolution, to address the concerns of their citizens. Are Italy’s iron laws of politics about to be rewritten? Or will this new, inexperienced, but deeply self-confident coalition soon forget the ambitious and somewhat dangerous goals of their governing agreement and instead focus on preserving their own power?

It might sound like a strange thing to say, but it would be in the interests of Italy and the European Union if the same old mechanisms maintain their grip on politics — and if the nationalist revolution fails.

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Giuseppe Conte

The puppet prime minister?

The no-name man tapped to be prime minister, 54-year-old law professor Giuseppe Conte, will hopefully manage to blunt the populists’ most radical ideas. If he cannot find compromises between the extremes within his coalition, he could very well soon face replacement.

Riegert Bernd

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Bernd Riegert is DW’s correspondent in Brussels

The leaders of the two parties making up the coalition — Luigi Di Maio of the protest Five Star Movement and Matteo Salvini of the nationalist League — have made big promises to their respective bases: Lower taxes, improved social benefits, earlier retirement, a more favorable relationship with the EU, economic growth and less bureaucracy. The strong-headed Di Maio and Salvini are likely to try and use Conte as a puppet for their own populist power games.

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Hollow phrases no substitute for policy

“Italy first” is the hollow rallying cry for the new leaders in Rome. That stance has left officials from the EU shuddering. They have argued that if every nation tries to go its own way, that does not leave much room for solidary among citizens in the bloc. “Nobody needs to fear us,” The League’s Salvini has said. But we should fear them. Brussels is allowed to be concerned, because the populists set to take over the EU’s third-largest economy could rattle the euro zone with irresponsible financial policies.

Read moreItaly: The populist odd couple preparing for government

“Italy is not Greece,” the new coalition in Rome has said. That’s true. Italy is a founding EU nation and much larger than Greece, but it also has massive amounts of debt. To bail out an economy as large as Italy’s in a way that is similar to what happened in Greece would be practically impossible.

The populists made out the euro currency, and its German fiscal guardians, to be the source of all evil during their campaign. It cannot be ruled out that they are actively trying to damage the economy in an effort to destroy the euro. Italy could introduce its own currency overnight and leave the eurozone.

The financial markets are simply ignoring the populists. The European Central Bank (ECB), with its flood of capital, is helping to keep Italy and other struggling countries afloat. It begs the question: How much longer can that last? If the ECB raised interest rates, it could quickly get ugly for Italy, to say the least.

Panic won’t help

When it comes to immigration and asylum policy, the nationlist League threatens to torpedo all of Brussels’ decisions. A sensible system of distributing migrants throughout the EU seems now like a distant dream. Close the borders and kick the foreigners out — that’s about all The League seems to have in the way of proposals.

The vow of its leader Salvini rings hollow: Italy will change, and it will try to change the EU with it. How far can or should we go when it comes to seeking compromise with these new radicals?

Nonetheless, the EU should not be nervous. Heated or panicked attacks, like those from France’s finance minister over the weekend, will have the opposite of their intended effect. Italy does not respond happily to criticism from abroad — and that doesn’t just go for the populists. This, too, is one of the iron laws of Italian politics.

http://www.dw.com/en/opinion-eu-panic-over-italian-populism-only-exacerbates-tension/a-43872124

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Lawyer Giuseppe Conte tipped to be Italy’s new populist PM

May 21, 2018

A largely unknown lawyer and law professor, far removed from the cut-throat world of Italian politics, Giuseppe Conte is the favourite to lead the country’s nascent populist government.

Luigi Di Maio, head of the anti-establishment Five Star Movement, and far-right league leader Matteo Salvini are to present their choice for prime minister in separate meetings with President Sergio Mattarella beginning at 1530 GMT.

© AFP/File | Leader of Italy’s populist Five Star Movement Luigi Di Maio had named Giuseppe Conte, seen on the right, as one of his ministers in March, with the press speculating he will be named prime minister

AFP

Mattarella has to agree on a prime minister with the parties before they can seek approval for their new government in parliament.

The pair have remained tight-lipped over their pick, but ahead of Monday’s crucial meeting, the Italian media have gambled on 54-year-old Conte.

Born in 1964 in the tiny village of Volturara Appula in the southern region of Puglia, Conte has had an impressive career in law and academia.

Di Maio had presented Conte as part of his team of ministers ahead of the March 4 general election, putting him charge of simplifying the country’s infamous bureaucracy.

That was the general public’s first and so far only encounter with Conte, who was subsequently invisible in the government talks that followed the inconclusive election, which later saw Five Star and the League striking a coalition government deal.

Conte’s CV includes study and research positions at some of the world’s most prestigious universities, including Cambridge University, the Sorbonne and New York University.

He runs a law studio in Rome, and currently teaches private law courses in Florence and at Luiss University in the capital.

He has been a member of the Board of Directors of the Italian Space Agency, a legal consultant to the Rome Chamber of Commerce, and a member of the supervisory board of a number of insurance companies in bankruptcy proceedings.

 

Italy’s populist parties to name future premier pick

May 21, 2018

 Italy’s anti-establishment Five Star Movement (M5S) and the far-right League party prepared Monday to present their pick for future premier of the country’s new populist government to end more than two months of deadlock after inconclusive elections.

© AFP/File / by Catherine MARCIANO | Anti-establishment M5S leader Luigi Di Maio and Matteo Salvini, who heads the far-right League, will meet the president on Monday evening

They are due to meet President Sergio Matterella at the presidential palace on Monday evening to formally present their choice.

After a week of haggling, M5S leader Luigi Di Maio and League leader Matteo Salvini closed a coalition deal and announced a joint programme which turns its back on austerity measures.

Both Di Maio and Salvini dreamed of running the first anti-establishment government within a EU-founding nation, but a clash of egos and lack of majority in parliament forced them to opt for a third candidate.

Media reports say the pair will, however, lay claim to their top ministerial picks: Interior minister for the nationalist Salvini and Minister of economic development for Di Maio.

“We have agreed on the leader and ministers of government and we hope that no one will veto a choice that represents the will of the majority of Italians,” Salvini said Sunday.

Rumours are also swirling around the nomination for premier with the media betting on a handful of candidates.

Giuseppe Conte, 54, a lawyer who teaches law in Florence and Rome is among the rumoured top picks. Though little known in Italy, he has an impressive CV with teaching stints at Yale, Cambridge and Sorbonne.

Andrea Roventini, a 41-year-old economist teaching at the university of Pisa has also been touted as another contender as well as Paolo Savona, 81.

Minister for industry between 1993-94, Savona was staunchly opposed to the signing of the Maastricht Treaty which, in the M5S-League programme, is cited as the moment the EU went off track.

– Berlusconi upset –

Never afraid of a long shot, former premier Silvio Berlusconi, who is upset with his right-wing ally Salvini, has also offered himself up as future premier.

Following a recent court ruling, the ageing billionaire is once again legally allowed to hold public office and has expressed his discontent with the coalition programme, especially the strict measures against conflict of interests in parliament which he sees as directly targeting his media empire.

“Salvini never spoke on behalf of the right-wing coalition, but only on his own behalf and on behalf of the League,” he said on Friday evening.

Berlusconi said his Forza Italia party would present a “reasonable and scrutinising opposition” to the new government and suggested he could run the government if Salvini decided to ditch M5S.

Mattarella must agree to the parties’ nominee before they can seek parliament’s approval for their nascent government.

The president will also examine the new M5S-League joint programme, overwhelmingly approved over the weekend in a public non-binding vote.

The 58-page programme does not mention a unilateral exit from the eurozone unlike previous versions leaked to the media but it rejects post-financial crisis austerity policies and features hardline immigration and security proposals.

The document’s costly financial measures and eurosceptic tone have got the financial markets worried.

The Milan Stock Exchange opened down by nearly two percent Monday, while the spread — the difference between the Italian and German 10-year borrowing rates — has gained 40 points in less than a week, increasing to 170 points.

by Catherine MARCIANO
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Italy: Law professor Giuseppe Conte likely to become new Prime Minister

May 21, 2018

Media tip law professor Giuseppe Conte ahead of announcement on Monday

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Giuseppe Conte is the favourite to become Italy’s prime minister, according to Corriere della Sera

James Politi in Rome

Giuseppe Conte, a little-known 54-year-old professor who specialises in public administration law and has hardly any political experience, has emerged as the frontrunner to be prime minister for Italy’s nascent populist government, according to Italian media.

Luigi Di Maio, the leader of the anti-establishment Five Star Movement, and Matteo Salvini, the head of the far-right League, were due to meet the Italian president, on Monday to secure his approval for their alliance to govern the eurozone’s third- largest economy.

After sealing a deal on a joint platform to run the country — rife with measures that have unsettled EU policymakers and investors in Italian securities — Mr Di Maio and Mr Salvini spent the weekend trying to find a compromise choice to implement their plan.

According to Corriere della Sera, Italy’s leading newspaper, Mr Conte — a law professor at the University of Florence and Luiss University in Rome who is originally from Puglia in southern Italy — had emerged as the top choice. Mr Di Maio and Mr Salvini have not confirmed the choice of Mr Conte, and people close to the negotiations cautioned that only the two leaders “know the name”.

President Sergio Mattarella, who has the final word on the choice of prime minister, could choose to rebuff Mr Conte’s candidacy if he believes his profile is too low to represent Italy on the international stage and to hold the government together at home. On Sunday, though, Mr Salvini issued a thinly veiled warning to Mr Mattarella not to stand in the way.

“We hope no one will place vetoes on this person’s name or surname. We won’t accept it,” Mr Salvini said. “It won’t be me, nor Di Maio. It will be a balanced name that satisfies us both,” he said.

Other names for prime minister that were floated in the Italian press in recent days include Andrea Roventini and Paolo Savona, two economists.

On Monday, as the formation of the government drew nearer there was no relief for Italian sovereign debt. A brisk sell-off in Italy’s bonds, known as BTPs, sent the yield on benchmark 10-year paper up 4.2 basis points at 2.259 per cent and back to levels last touched in October and last exceeded in the summer of 2017. At the start of last week before the coalition proposals were published, the yield stood at 1.894 per cent.

Mr Di Maio, who led Five Star to win 33 per cent of the vote in Italy’s general election in March, has long held out hope that he would become prime minister, but has always been blocked by resistance from Mr Salvini. But Mr Di Maio is still expected to be part of the government, as minister of labour and economic development, allowing him to oversee the disbursement of a €780 per person basic income to the poor, which is Five Star’s signature policy.

Meanwhile, Mr Salvini is set to become interior minister, which would put him in charge of a crackdown on immigration — including plans to deport up to 500,000 illegal immigrants — which was central to his campaign.

Giampiero Massolo, the chairman of Fincantieri, the state-owned shipbuilding company, and a veteran diplomat, is expected to be foreign minister in the new government, while the post of finance minister is still very much up for discussion, with Giancarlo Giorgetti, a key aide to Mr Salvini, seen to be in pole position.

If Mr Mattarella approves the choice of prime minister on Monday, a succession of ministers could swiftly follow. They could be sworn in before the end of the week, replacing the incumbent centre-left administration led by Paolo Gentiloni. The final hurdle for the Five Star-League government would be a vote of confidence in both houses of parliament.

The establishment of a populist government in Rome has already raised alarm bells across EU capitals. Bruno Le Maire, the French finance minister issued a blunt warning to Rome on Sunday, saying that Italy needed to respect EU budget rules or the single currency would be in jeopardy.

“Italians must understand that the future of Italy is in Europe and nowhere else, but there are rules to respect,” Mr Le Maire said in an interview on Europe 1 radio. “If the new government takes the risk of not meeting its commitments on the debt, the deficit, but also the clean-up of the banks, it is the entire financial stability of the eurozone which would be threatened,” he added.

His intervention, however, was swiftly rebuffed by Mr Salvini.

“This is another unacceptable pitch invasion,” he wrote on Twitter. “I didn’t ask for votes . . . to continue on a path of poverty, precariousness and immigration: Italians first!”

https://www.ft.com/content/8a89b67a-5cbf-11e8-ad91-e01af256df68

France warns Italy against breaking EU commitments

May 20, 2018

The stability of the eurozone will be at stake if a populist new government in Italy fails to keep its financial commitments, French Economy Minister Bruno Le Maire warned Sunday.

© AFP/File | French Economy Minister Bruno Le Maire speaks gives a press conference after an informal meeting of economic and financial affairs ministers (ECOFIN) at the in Sofia on April 28, 2018

“If the new government takes the risk of not respecting its commitments on debt and the deficit, but also the clean-up of the banks, the financial stability of the eurozone will be threatened,” Le Maire told CNEWS television.

“Everyone must understand in Italy that Italy’s future is in Europe and nowhere else, and if this future is to be in Europe, there are rules that must be respected,” he added.

Le Maire said previous commitments by Italy would remain “whichever government” was in place.

Brussels is anxious that Italy continues with efforts to bring down its massive debts in line with EU rules, wary that a new government in Rome will seek to increase public spending.

The EU forecasts that Italian public debt will remain 130 percent above its GDP this year — more than double the bloc’s 60-percent ceiling.

“I respect the sovereign decision of the Italian people, but there are commitments which go beyond all of us,” Le Maire said.

“We will see what decisions are taken by Italian officials. I cannot stress enough how important it is to keep these commitments in the long-term to guarantee our common stability.”

The anti-establishment Five Star Movement (M5S) and far-right League party, which are edging towards forming a government, called for deep changes in Italy’s relations with the EU in a joint policy programme published Friday.

Italy has been in political deadlock since inconclusive elections in March.

While an exit from the single currency — mooted in leaked drafts of the document — is no longer proposed, the document announced the parties’ intention to review “with European partners the economic governance framework” of the EU, including the euro.

The parties want a monetary union that is “appropriate for the current geopolitical and economic imbalances and consistent with the objectives of the economic union”, it said.

In a Facebook video, Five Star leader Luigi Di Maio said that the programme had received an approval rating of more than 94 percent after it was put to party members for a vote on M5S’ online platform.

The League was also offering a vote to anyone visiting party stands put up across the country over the weekend.

But as voter approval is little more than a formality, all eyes are on who the two parties will choose as their candidate for prime minister.

They need to announce a name in time for a meeting on Monday with President Sergio Mattarella.

Five Star became Italy’s largest party in the March elections, gaining nearly 33 percent of the vote.

The League — shorn of the rest of the rightwing coalition that won 37 percent — will be the junior coalition partner with 17 percent.

The joint policy platform also includes a number of manifesto promises from the League, including hardline immigration and security proposals.

AFP

Combination of Anti-EU Parties in Italy Causes Drop in Italian Assets — World financial system out of kilter?

May 19, 2018

Investors’ failure to calibrate political risk may add to move higher in the dollar and US rates

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By John Authors
Financial Times

In Tim Burton’s film Mars Attacks one scene shows Jack Nicholson, as the US president, taking a phone call from his opposite number in France. “I have some good news for you. The Martian amabassador is here and we’ve negotiated a settlement,” says the president of France.

Alarmed, Nicholson tells him to get out of the room as fast as he can. But he is too late. We watch as the Martians jump up and kill the French president and his delegation with ray guns. In the background, a flying saucer concentrates a death beam on the Eiffel Tower, which bends and collapses.

An analogy can be drawn between the French president in this scene, and capital markets of the past few years. Investors appear completely incapable of judging exactly what electors and politicians are going to do, and remain stunningly trusting that they are not going to do exactly what all recent experience suggests that they are going to do.

I am not suggesting that the alliance of the Five Star Movement and the League will behave like the Burton’s Martians, and destroy everything in sight just for the fun of it. But their proposals might appear almost as bad as that to investors who retain a hope that many of the post-war consensus positions of globalisation will stay intact. It is no longer wise to take this as a given.

With two populist and anti-EU parties agreeing to form a government over the past week, Italian assets have taken a dive. The spread in the yields of Italian over German 10-year government bonds has widened from 1.14 percentage points three weaks ago to 1.65 percentage points today.

But such a sharp rise was only possible because Italian yields had fallen, showing less concern from investors, for months ahead of the election, and even after the result was known. Last summer, Italian yields were 1.7 percentage points higher than in Germany. And since early 2016, Italian stocks had beaten the rest of Europe by more than 30 per cent, according to FTSE indices, before the recent sharp correction.

This failure to read voters and politicians continues a string of incidents over the past two years in the UK (investors bet on a “Remain” vote before the Brexit referendum, prompting a historic fall in sterling); the US (stock markets priced in a victory for Hillary Clinton); the Netherlands (markets panicked at the prospect of a victory for the populist Geert Wilders, only to stage a rebound when he lost), and France, where fear of a Le Pen presidency proved unjustified.

One instant effect of the Five Star government has been a move to the haven of the US. This has continued the upward pressure on the dollar, which has reversed its recent decline.

Markets have also been wrongfooted by the rising tension in the Middle East which has helped push oil prices up to $80 per barrel. Normally a rise in the oil price entails a fall for the dollar, but not this time.

They also failed to gauge the policy of governments already in power. US bond yields started to rise in early September last year, as the possibility of a big tax cut suddenly came into focus. Although this had always been a priority of the new Trump administration, traders doubted that it would happen. Ten-year Treasuries yielded 2.04 per cent in early September; they now yield 3.11 per cent, their highest in seven years. Such a level is still not that high in historical terms — but that swift a percentage increase, thanks to bad misjudgments of the political situation, sharply raises the cost of credit. And the speed of the proportionate increase may be more important in tightening financial conditions than the level of yields.

As for stock markets, they briefly “melted up”, until it finally sank in that the extra fiscal stimulus would entail higher interest rates, higher bond yields and a stronger dollar.

We must wait to see just how confrontational Italy’s new leaders are prepared to be with the rest of the EU. Any attempt to leave the euro, or leave the EU altogether, would have a profound effect, and would yet again send money pouring into the relative haven of the US.

Dollar strength could now take on great importance. For years after the crisis, dollars were abundant and real yields in the US were negative, prompting many to borrow in dollars. This is not just an issue for the emerging markets. David Bowers of Absolute Strategy Research in London points out that some 80 per cent of Canadian corporate debt is denominated in US dollars, while according to the IMF the total of US dollar-denominated claims outside the US from non-US banks has risen to about $14tn, from $4tn in 2000.

Adding the currency effect to the higher yields could radically change the ability of many companies around the world to raise funding.

Higher yields and more expensive dollars need not have the same effect as Tim Burton’s rampaging Martians. But the collective failure to gauge the political world is putting the world financial system out of kilter. Investors should proceed with care.

https://www.ft.com/content/884490e6-5a81-11e8-b8b2-d6ceb45fa9d0

Fiat CEO Is Ready to Abandon Making Mass-Market Cars in Italy

May 18, 2018
Panda to be assembled in Poland; Mito, Punto models killed off — Historic plants reserved for Alfa Romeo, Maserati, Jeep SUVs
An Alfa Romeo MiTo

Photographer: Vincent Isore/Getty Images

In his final move to transform Fiat Chrysler Automobiles NV, Chief Executive Officer Sergio Marchionne is going back to the very place where it all began: Italy.

The CEO is preparing to unveil on June 1 a sweeping transformation of production in Italy that will see the company abandon the manufacture of the budget Punto and Mito cars in favor of upscale models, according to people familiar with the plan. A historic plant in Turin and another near Naples will be retooled to produce new Maserati and Jeep SUVs, while Panda output will be moved to Poland, said the people, who asked not to be named because the project isn’t public.

The changes at its Italian roots would complete a historic shift for the company founded in 1899 that grew to become a symbol of the country’s post-war industrial boom, mainly by producing cars — such as the subcompact Fiat 500 — that ordinary consumers could afford. The refocus is part of Marchionne’s last strategy blueprint aimed at shifting western European production to premium cars, boosting the sale of Jeeps worldwide and moving the carmaker from diesel to hybrid electric cars, the people said.

A final decision about the plan for Italy hasn’t been made and some details could still change before the presentation next month, they said. Fiat Chrysler Automobiles NV declined to comment.

Marchionne, 65, who is set to retire as CEO next year, doesn’t see a future in making affordable cars in high-wage European countries, said people familiar with the carmaker’s strategy. Amid a transition over the next decade in the way vehicles are powered, driven and purchased, he has said this “portion of the auto industry risks being commoditized.”

Maserati SUV

The changes in Italian production would see Fiat Chrysler stop output later this year of its longstanding Punto model in the southern factory of Melfi, the people said. The Alfa Romeo Mito would be halted at the main Turin plant, known as Mirafiori, where a second Maserati SUV would likely be added as an addition to the Levante model already coming off its assembly lines. The Turin facility is the historic center of Fiat, having been inaugurated by the fascist dictator Benito Mussolini in 1939 and employing some 50,000 workers in its heyday in the 1970s. The plant now produces less than 50,000 cars a year compared to a peak of more than 600,000.

A Fiat Punto

Source: FCA

At another manufacturing site in Pomigliano, near Naples, home of the Five Star leader Luigi Di Maio, Fiat Chrysler will start making a small Jeep SUV after production of the Panda subcompact is moved to Poland, the people said. FCA’s strategy, which is centered on the expansion of the Jeep brand, will also mark the end of diesel engines in the carmaker’s small European vehicles. These will be powered by electric hybrid motors going forward, the people said. The namesake Fiat brand is likely set to shrink further to just the 500 and Panda models in Europe with other budget cars to be discontinued, they said.

Italian unions have voiced concern about the slow pace at which Fiat Chrysler is adding new products in the market. A three-day temporary layoff in June that will affect more than 6,000 workers has added to those concerns.

The shift toward making premium cars in Italy furthers a strategic direction set by Marchionne in 2014, following the acquisition of Chrysler, which gave Fiat access to the U.S. market. A “repositioning” of the carmaker’s business in Europe is crucial, he said during a conference call about first-quarter earnings last month.

“When I look at the economics, and I look at return on invested time — forget about invested capital — return on invested time and the effort that’s required to make Europe reasonably profitable, one would have to wonder why one is doing it, because it is fraught with difficulty, it is an incredibly complex jigsaw puzzle,” he said.

Industry Shift

In January, Marchionne said in an interview that the carmaker could double profit within five years by exploiting the potential of the Jeep brand.

The Italian-born executive, who is embarking on his 15th year as CEO, has not shied from bold decisions on manufacturing. Two years ago, he killed the Dodge Dart and Chrysler 200 sedans and retooled the factories that had been assembling them. These now build Jeep SUVs and Ram pickups. Ford Motor Co. is following Fiat in scrapping sedan production in the U.S.

Fiat Chrysler’s strategy in North America has so far paid off. The company, which almost halved net industrial debt in the first quarter, reported wider profit margins than Ford during the period and now has its sights on General Motors. Marchionne is aiming to better GM margins in North America before he steps down next year.

 

https://www.bloomberg.com/news/articles/2018-05-18/fiat-ceo-is-said-to-plan-sweeping-production-shift-in-italy

Italian parties agree basis for government deal, say no threat to euro — Prime Minister? Neither Salvini nor Di Maio wants the other to get the job

May 17, 2018

Italy’s two anti-establishment parties agreed the basis for a governing accord on Thursday that would slash taxes, ramp up welfare spending and pose the biggest challenge to the European Union since Britain voted to leave the bloc two years ago.

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FILE PHOTO: Anti-establishment 5-Star Movement leader Luigi Di Maio speaks following a talk with Italian President Sergio Mattarella at the Quirinal Palace in Rome, Italy, April 12, 2018. REUTERS/Max Rossi

Leaders of the far-right League and the 5-Star Movement, which emerged as two of the biggest parties from an inconclusive election on March 4, have been discussing a common policy agenda to form a coalition government and end more than 10 weeks of stalemate.

When 5-Star leader Luigi Di Maio emerged from a four-hour meeting with League chief Matteo Salvini, he said the two parties had to hammer out a few “minor details” and that the program should be finalised later in the day.

Moments earlier, a 5-Star source had said the program had been substantially agreed and that it contained no reference to a possible exit from the euro or “anything that could cause any concern regarding Italy’s euro membership”.

The accord has yet to be made public and still needs to be ratified by both parties’ members, as well as gaining approval from Italy’s president. The parties had made progress on agreeing a prime minister, Di Maio said, but he did not give a name.

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

The policies would cost many billions of euros and have spooked investors in Italian debt, shares and the euro. Italy is the euro zone’s third-largest economy.

In a direct challenge to EU fiscal rules, the draft accord also called for the bloc to create fiscal headroom for spending by adjusting the formula used to calculate Italy’s debt burden, which the rules say must be reduced.

In calculating debt as a proportion of gross domestic product — Italy’s ratio of more than 130 percent is second only to Greece in Europe — the draft accord proposes discounting hundreds of billion euros in Italian debt purchased by the European Central Bank under the bank’s quantitative easing (QE) program.

On Thursday, the EU’s statistics office said it cannot exclude Italian bonds held by the ECB from its debt calculations.

News of the draft accord has caused concern in Brussels, where European Commission Vice President Valdis Dombrovskis told the EU parliament on Thursday that Italy’s new government should stick to fiscal discipline and keep reducing public debt.

“This is our message to the new government. It’s important to stay the course,” Dombrovskis said.

Italy’s borrowing costs have been rising as details of the accord emerge. The gap between the yields on Italy’s benchmark bonds and safer German bonds was at its widest since early January as Italian 10-year bond yields were set for their biggest two-day jump since March last year.

FILE PHOTO: League party leader Matteo Salvini leaves after a meeting with Italian President Sergio Mattarella during the second day of consultations at the Quirinal Palace in Rome, Italy, April 5, 2018. REUTERS/Alessandro Bianchi/File Photo

FORGIVENESS

Outgoing Prime Minister Paolo Gentiloni told a meeting of EU leaders in Bulgaria that he and other leaders were worried that fundamental issues such as the need to safeguard public accounts were now up for political discussion.

The draft pact proposed a new “universal income” for the poor costed at 17 billion euros, while it said a planned softening of an unpopular pension reform would cost 5 billion.

The plan promised to introduce a 15 percent flat tax rate for businesses and two tax rates of 15 and 20 percent for individuals — a reform long promoted by the League. Economists say this would cost well over 50 billion euros in lost revenues.

There was still no word on the thorny issue of who would be prime minister. Neither Salvini nor Di Maio wants the other to get the job.

President Sergio Mattarella, who has repeatedly stressed the importance of maintaining a strong, pro-European stance, may also be dismayed at the deal the League and 5-Star come up with.

Each party plans to consult its supporters over the weekend to see if they back the nascent government pact. The policy program will probably be published on Thursday, 5-Star said.

Additional reporting by Huw Jones and Crispian Balmer; Editing by Mark Bendeich, Peter Graff and David Stamp

Reuters

M5S and League agree contract for Italy’s ‘government of change’

May 17, 2018
The leaders of Italy’s two political upstarts, the Five Star Movement (M5S) and the League, say they have agreed on the final draft of a contract that lays out their vision for a ‘government of change’.

While the make-up of the cabinet remains to be decided, after days of intense negotiations members of the two populist parties finalized their programme on Wednesday night, according to M5S spokesperson Rocco Casalino.

“At the end there was applause and we all hugged each other,” he said.

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The Five Star Movement’s Luigi Di Maio after talks at the presidential palace. Photo: Andreas Solaro/AFP

The 40-page document contains more than 20 sections, of which a handful – “six points, barely six lines”, according to Casalino – still have a question mark over them. M5S leader Luigi Di Maio and the League’s Matteo Salvini will have the final say, reviewing and signing the document before presenting it to President Sergio Mattarella.

The head of state has made it clear that he will only look at the definitive version of the text, after a draft leaked earlier this week caused consternation with proposals that would allow Italy to leave the euro, demand financial concessions from the EU and withdraw sanctions on Russia.

READ MORE: Leak reveals League and Five Star Movement’s radical plans for Italy


Matteo Salvini of the League. Photo: Andreas Solaro/AFP

Some of the more explosive ideas are absent from the revised contract, notably the suggested opt-out from the single currency. The later draft states that Italy’s position on the euro will be decided with its European partners, according to a version dated Tuesday evening and published by La Repubblica.

Other changes include the insertion of a section on vaccines, which calls into question the current law making ten early immunizations compulsory for children attending public schools. A proposal to introduce term limits for legislators has also been added.

The draft still calls for immediate suspension of Russian sanctions, as well as opening the door to pension reforms, a so-called “citizen’s income”, and two flat tax rates – though that last point is highlighted in red, indicating that it had yet to be agreed upon.

Some of the other items still in red in that version include parts of a hardline immigration policy that would see Italy increase detentions of undocumented immigrants and speed up deportations. There appears to be a question mark over whether asylum centres should “fully respect” migrants’ human rights, while another highlighted section proposes the creation of a register of religious ministers and a requirement that sermons be delivered in Italian, which are described as antiterrorism measures.

The biggest uncertainty remains who will lead the government supposed to put such policies in practice. Di Maio has said that he and Salvini are “ready to remain outside” the leadership if necessary, adding that Italy’s next prime minister would be “a political nominee who will be selected by both forces”.

The parties are expected to meet again on Thursday to continue putting forward names. Both Di Maio and Salvini say that the final government contract and composition of the cabinet will be put to their parties’ members for approval. President Mattarella and parliament must also approve the nominee for PM.

Markets will be watching the developments closely: the Italian stock market put in Europe’s worst performance of the day on Wednesday after the draft contract was leaked, falling 2.32 percent.

https://www.thelocal.it/20180517/m5s-league-contract-italy-government-of-change

Italy Populists Agree to Form Coalition Government

May 17, 2018

Italy’s borrowing costs jumped on Wednesday and its stocks slid after a draft program for a potential coalition government revealed plans to demand 250 billion euros of debt forgiveness and create procedures to allow countries to exit the euro.

But on Thursday, the League and 5 Star agreed anyway to form a coalition government….

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Italy’s two anti-system parties on Thursday moved to form a coalition government after 10 weeks 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 that he would not be intimidated by negative reaction from financial markets or attacks from the media.

Morea as it becomes available…