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Italy's Populist Leaders Set to Meet in Final Push for Power

Bloomberg logo Bloomberg 16/05/2018 John Follain, Chiara Albanese and Lorenzo Totaro

Italy’s populist leaders are set to meet Wednesday in a final push for a coalition agreement with bond-market concerns mounting.

The policy program is 90 percent settled, according to a League official who asked not to be named discussing confidential plans. Outstanding issues include security, immigration and justice, according to a Five Star official.

Five Star leader Luigi Di Maio and anti-immigrant League chief Matteo Salvini are entering the final stages of days-long talks that would see the two parties sharing cabinet responsibilities -- though they’ve yet to say who will be prime minister. Corriere della Sera reported that the two leaders could take turns.

“We should be able to close the government program by the end of today,” Salvini said in a live Facebook video. “If we do, names will be next.”

a screenshot of a video game: BTPs Rumbling © Bloomberg BTPs Rumbling

More than two months after Italy’s inconclusive election on March 4, the two sides have repeatedly blown through deadlines set by President Sergio Mattarella as they try to square their different policy priorities.

League economic adviser Claudio Borghi told reporters there is no proposal to cancel part of Italy’s debt in the draft program. He said there is “simply the request for a change in accounting rules” so that securities bought by the European Central Bank would not impact the debt-gross domestic product ratio, adding the request would apply to all EU countries.

Italian yields came off their highs of the day after Borghi’s comments, though the 10-year government bond yield remained above 2 percent, leaving the spread over German bunds at 146 basis points.

Earlier however, fellow-League lawmaker Armando Siri told La7 television that they are discussing a 250 billion-euro ($300 billion) write-off from the European Central Bank, confirming an earlier report by the Huffington Post. The ECB is barred from directly financing governments under the Maastricht Treaty. An ECB spokesman declined to comment.

Salvini himself was dismissive of investors’ concerns, reminding supporters of how a market selloff help unseat his center-right ally Silvio Berlusconi during the financial crisis.

“The spread is going up -- do you remember the spread?” he said. “The games at the table of big finance, who buys, who sells, who buy, who sells. Do you remember how the last legitimate government of Silvio Berlusconi, which the League was part of, went home in 2011?”

a group of people standing in front of a crowd: Populist Leaders Present Governing Accord © Bloomberg Populist Leaders Present Governing Accord

“This is all fairly disruptive stuff for Italian bonds,” said Jason Simpson, a strategist at Societe Generale SA. “The markets had been assuming that they would tone down some of their more radical views.”

Precarious Finances

Analysts say that their spending plans -- which include slashing the main tax rate for companies and individuals to as low as 15 percent -- are potentially so destabilizing for Italy’s precarious public finances that they would likely run into significant obstacles either from the courts or the parliament.

Mattarella himself has been concerned about the impact of the populists’ pledges on fiscal and foreign policy since Salvini’s center-right alliance and Five Star emerged as the biggest groups from the March 4 election.

The parties’ draft policies so far echo their key campaign proposals -- a flat tax for the League, and Five Star’s citizen’s income for the poor. Di Maio and Salvini, as well as party officials, held marathon talks throughout the weekend to finalize the program.

Depending on their progress, Mattarella could name a premier-designate this week. He or she would meet party leaders before presenting a list of ministers to the president for approval. The new government would then be sworn in before facing a vote of confidence in both houses of parliament.

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