Published: Thu, May 17, 2018
People | By Neil Grant

European Union accused of 'interfering' in Italian politics

European Union accused of 'interfering' in Italian politics

Italian stocks slid on Wednesday after reports that the two parties seeking to form Italy's next government might seek debt forgiveness, while the dollar ignored a pull-back in United States bond yields and rallied to a new 2018 high.

Bat Gogh's tweet (above) says among the new political double act's demands are the cancellation of 250 billion of debt, exit from the euro and "a helicopter with a full tank". 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 of last year. "Pretending the unilateral cancellation of €250bn of debt bought by the European Central Bank as part of the quantitative easing programme. would be absurd", Anthilia Capital Partners fund manager Giuseppe Sersale said. Italy's stock market dropped about half a percentage point. 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 promised to introduce a flat tax rate of 15%, which would tax revenues by some 80 billion euros (RM376 billion) per year, while 5-Star has pledged new welfare payments for the poor costed at around 17 billion euros (RM80 billion).

The bloc's budget rules require it to cut the debt pile aggressively under the "fiscal compact", which both parties want scrapped. Two-year Italian government yields are now back in positive territory for the first time in nearly a year - the only other positive yielding two-year euro zone government bond is Greece.

Both groups have a history of euroscepticism.

"While the situation in Italy is a concern for currencies, the 5-Star Movement sees Britain struggle with its European Union exit plan and is unlikely to pursue a similar agenda".

It is still far from clear whether Five Star and the League are prepared to go all the way - and in fact the bluster on the euro may simply be the product of a political compromise in their negotiations that will never translate into policy.

The comments are taking a page out of U.S. President Donald Trump's book and rallying cry "America First".

The emerging M5S-Lega coalition government is also demanding a revision of the Dublin rules that call for migrants to apply for asylum in the country of entry, while that await a decision on a possible resettlement.

An incendiary early version of their accord called for the renegotiation of European Union treaties, the creation of a euro opt-out mechanism, a reduction in Italy's contribution to the European Union budget and the cancellation of €250bn of Italian government debt.

If formed, the government will then look to battle the European Union establishment.

"This is our message to the new government". An official copy of the program has yet to be published.

A government led by Italy's populist 5Star Movement and far-right League would seek to renegotiate European treaties and call for a "radical reform" of the EU's stability and growth pact, according to a leaked copy of the parties' draft coalition agreement.

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