EU on brink: Italy's new populist government puts Rome on COLLISION course with Brussels
EUROPE is holding its breath as Italian populist parties Lega and Five Star Movement reach the terms of a coalition deal set to put Italy on a collision course with the EU in a confrontational move defying the bloc's financial plans.
By ALICE SCARSI
PUBLISHED: 15:05, Fri, May 18, 2018 | UPDATED: 15:16, Fri, May 18, 2018
The leaders of the two parties have signed a “contract” calling for reforms that would defy the EU’s financial policy.
Despite party leaders Luigi Di Maio and Matteo Salvini momentarily dropping plans to hold a referendum on the Euro and other radical proposals, they now seem ready to confront the EU to bring forward expensive reforms.
The document, which is setting the basis for the next five years of government, calls for a review of EU governance and fiscal rules.
These moves will be a political challenge even bigger than Brexit for the EU, as it is posed by the third-largest economy in the eurozone and a historically pro-European state member.
Lorenzo Codogno, former general director at the Treasury Department of the Italian Ministry of Economy and Finance, said: “The positions of the Five Star and, far less, of Lega have been watered down over the past few months.
“But their attitude towards Europe appears still very confrontational.”
The two parties agreed on tax cuts worth billions of euros, additional spending on welfare for the poor, and a radical change of the pension system, lowering the age people will be able to retire.
Five Star’s leader Mr Di Maio said he hopes the document will help “to send a message directed to Europe.”
He said: “There are many people suffering in Italy, employees, entrepreneurs and unemployed, and they are more important than anything else and must be put before anything else.”
The costs of these measures range between 65 billion euros, according to Italian newspaper Courier della Sera, and 126 billion euros, according to Carlo Cottarelli, a former senior International Monetary Fund official.
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Matteo Salvini and Luigi Di Maio signed a “contract” calling for reforms that would defy the EU
The markets’ reaction to the paper was negative, as the euro sank again for its fifth straight weekly fall against the dollar.
David Madden, a strategist at CMC Markets said: “The possibility of a eurosceptic government in Rome is shaking investor confidence at this point a larger fiscal deficit and greater bond issuance in Italy does seem likely.”
The document has been approved days after a more radical contract was leaked by the Italian Huffington Post.
The paper called for tougher measures against the EU including freezing of Italian government bonds in the ECB’s portfolio and a potential Italexit.
Mr Codogno called the leak an “eye-opening experience” for those who had a "complacent attitude" towards the two parties.
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The costs of the measures called for by the two parties could cost as much as 126 billion euros
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The two populist parties could represent a political challenge bigger than Brexit for the EU
He said: “The leak is a watershed in the external perception of what an anti-establishment government may mean.
"It would very much put the new government on a Syriza-like trajectory within Europe.
“In this situation, financial markets may take the prospect of early elections as a positive development.”
The Five Star, a movement that originated from a blog and has kept a close link with its online base, wants its members to approve the contract with informal online votes before presenting it to Italian President Sergio Mattarella on Monday.
The next steps to end the two-month stall will consist in the two parties putting forward the name of a potential prime minister and President Mattarella approving their government plan.
