Italy takes 'big steps' towards euroskeptic coalition

World
Europe

Italy is edging towards a populist, euroskeptic coalition government after a day of talks between the anti-establishment Five Star Movement and the far-right League.

The parties said they took "big steps" towards forming a government on Thursday to end over two months of deadlock that followed an indecisive election in March, as Italian President Sergio Mattarella warned the euroskeptic groups against undermining the country's role in the EU.

Who are the possible partners?

Five Star Movement: Five Star, led by Luigi Di Maio but founded by comedian Beppe Grillo, is anti-establishment. It has promised direct democracy online, a 780-euro monthly wage to the unemployed, the repeal of hundreds of laws and closer ties with Russia.

League: The League, led by Matteo Salvini, is on the far-right of the political spectrum. It is firmly anti-immigration, as opposed to Italy's membership of the eurozone, has promised a 15 percent flat tax and wants to reopen brothels.

The parties are yet to agree on a candidate for prime minister and have some major policy differences to reconcile, however. Any agreement would have to be approved by Five Star's 140,000 members in an online ballot.

Mattarella has been asked to give the parties until Monday to reach an agreement, failing which fresh elections could be held.

Who will be PM?

Five Star Movement leader Luigi Di Maio, 31, and League chief Matteo Salvini, 45, said "big steps were made towards the composition of the executive and the nomination of the prime minister" after a meeting at the lower house Chamber of Deputies on Thursday.

Luigi Di Maio, leader of the Five Star Movement. /VCG Photo

Question marks still hang over who will be named premier and who will be appointed to key ministries.

Both Di Maio and Salvini have said they are willing to step back and let someone else take the premiership but, according to the Italian press, neither has completely given up on their ambitions to lead the country.

Speculation in local media suggests Di Maio could take on the foreign ministry and Salvini the interior ministry, however, with a senior League official taking over as prime minister.

Are policies aligned?

Top officials from both sides are pouring over the parties' key proposals in order to forge a government contract. The two groups are hostile to European Union budget restrictions and have made electoral pledges that would cost billions of euros to implement. An eventual coalition agreement is likely to include measures opposed to migration.

Talks will likely be complicated given the serious differences between the two parties, in particular regarding the Five Star Movement's flagship universal basic income policy which the League has said will create a culture of dependency.

Matteo Salvini (L), leader of League, speaks as Silvio Berlusconi, leader of Forza Italia, looks on. /VCG Photo

The Five Star Movement, which draws much of its support in the impoverished south, wants to introduce generous welfare benefits. The League, which has an electoral base in the wealthy north, wants to slash taxes.

“This will be a government of contradictions which risks sinking into damaging nationalism,” said Maurizio Martina, secretary of the Democratic Party, was quoted as saying by The Times. “Some of them are demanding ‘less taxes for all’ in the north, while others want ‘more subsidies for all’ in the south.”

One of the first things the two parties are likely to agree on will be to scrap a 2011 pension reform which raised the retirement age and required further hikes over time.

Economists say repealing the law would cost 20 billion euros a year, but opponents say it is unfair on ordinary Italians.

EU skeptics

Both the Five Star Movement and the League want to renegotiate the EU's fiscal rules to allow Italy to spend more, while the former has also signaled it would like to hold a referendum on NATO membership. The possible partners are also opposed to EU sanctions on Russia.

The Five Star Movement has rowed back on a pledge to hold a referendum on Italy's membership of the eurozone, but the League still calls the euro a "flawed currency" and wants to exit it as soon as is politically feasible.

A senior League senator, euroskeptic economist Alberto Bagnai, told reporters on Thursday that quitting the euro would not be a priority for the new government, but added: "European Monetary Union is destined to fail... It makes no sense."

Italian President Sergio Mattarella. /VCG Photo

Meanwhile, President Mattarella made clear on Thursday that he did not want to see any confrontation with Brussels.

"To think that one can go it alone in Europe is knowingly deceptive in front of public opinion," Mattarella said in a pointedly pro-European speech.

Referring to the euro, he said: "We have a currency that is capable of being a concrete anchor in international relations, a role that no national currency can perform."

The gap between Italian benchmark bond yields and the safer German equivalent widened on Thursday on concerns that the state accounts might take a hit. Italy's top share index fell one percent, the biggest decline of the day among Europe's main stock markets.

"The prospect of having a government of two Eurosceptic parties creates uncertainties... Investors may not trust such a government and fear that debt would rise," IG Markets analyst Vincenzo Longo told Reuters.

Berlusconi steps back

A breakthrough in negotiations came when Salvini's right-wing coalition partner, former prime minister Silvio Berlusconi, gave the green light on Wednesday for the pair to form a government without his Forza Italia party.

Silvio Berlusconi, leader of the right-wing party Forza Italia. /VCG Photo

Salvini and Berlusconi's coalition won the most seats in the March election, but the 81-year-old ex-premier has been a sticking point in the ensuing horse-trading. Di Maio insisted Salvini dump media mogul Berlusconi and formed a government without Forza Italia.

After three failed rounds of consultations hosted by Mattarella, Italy had looked to be heading either for a caretaker government, chosen by the president, or fresh elections. Both the League and Five Star are staunchly opposed to a caretaker government, and without their support, the initiative would not pass a confidence vote in parliament.

The alternative could be fresh elections as early as July. "Either we reach a conclusion, or we return to the voters," Salvini said.

(With input from agencies)

8135km