Italy threat to rip up Eurozone rules shakes European Union powerbrokers

Adjust Comment Print

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 largest challenge to the European Union since the United Kingdom voted to leave the bloc two years ago.

"I think it's the same thing we have had really for the past couple of weeks: The inflation trade is being put on", said Walter Todd, chief investment officer at Greenwood Capital in Greenwood, South Carolina.

French President Emmanuel Macron said the nascent Italian government was made up of "heterogeneous and paradoxical" forces, but expressed confidence that Mattarella would ensure Italy continued to work constructively in the EU.

Neither Salvini nor 5-Star leader Luigi Di Maio want the other to get the job, but they have yet to propose a mutually acceptable alternative figure.

Italy's populist parties considered asking the European Central Bank to write off 250 billion euro of the country's debt, which the bank is due to hold after the end of its quantitative easing bond-buying programme, and called for the creation of a mechanism to allow member states to ditch the euro and recover their own monetary sovereignty, suggesting they would abandon the fiscal rules underpinning the euro once in government. If they fail, he may revert to an earlier plan to appoint a non-partisan prime minister in order to break the deadlock that has dragged on since the March 4 inconclusive election. Italian bond yields and the cost of insuring Italy's debt against default jumped on the news even after Claudio Borghi, the League's economics chief, told Reuters the request for debt forgiveness was never in an official draft of their programme. This is the biggest one-day rise since July 2017, Reuters data shows.

The 39-page draft, obtained by Huffington Post Italia, reflected the difficulties the two pre-election rivals face in finding the resources needed to pay for promises they made to their voters during the campaign. The document calls for billions of euros in tax cuts, additional spending on welfare for the poor and a roll-back of pension reforms in the eurozone's third-largest economy. Italy already has an enormous debt worth more than 130 per cent of annual output, second only to Greece in the EU.

Terrorists ID'ed Among 62 People Killed on Gaza Border
Israeli gunfire "will never make us lose hope to get back our land", said Mohamed Abu el-Majd, 23, whose left leg was fractured. Israel, with United States backing, says Hamas is behind the protests, deliberately provoking violence for propaganda aims.

European Union leaders meeting in Sofia on Wednesday are likely to be concerned about the rhetoric coming from the parties that could form a new Italian government as early as next week.

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.

The pan-European FTSEurofirst 300 stock index rose 0.51 percent.

"The near-term picture remains positive for the dollar with Treasury yields showing few signs of topping, a move that makes the buck a more enticing bet to income-seekers", said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington. He declined to comment on the outcome of the coalition talks.

The governing accord agreed to by the Northern League and 5-Star Movement is in direct opposition to European Union policies. Both groups have a history of euroscepticism. However, the League still wants to leave the euro zone as soon as politically feasible. President Sergio Mattarella, who has repeatedly stressed the importance of maintaining a strong, pro-European stance, may also be dismayed.

Both parties plan to consult supporters over the weekend to see if they back the government pact. The policy programme will probably be published on Thursday, 5-Star said.