Italian markets spooked by populist proposal

17 May, 2018, 17:08 | Author: Wade Massey
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The League's support largely is centered in northern Italy, where it backs lower taxes and reining in central government spending, a popular platform in Italy's most productive region.

Fed up with the country's long, seemingly irreversible economic decline, persistent high unemployment and a refugee and migrant crisis, Italy's voters turned on the political centre that has governed (or failed to govern) Italy since the 1980s.

Salvini accused the Commission of "unacceptable interference". M5S leader Luigi Di Maio and the League's Matteo Salvini will have the final say, reviewing and signing the document before presenting it to President Sergio Mattarella.

They also share an anti-establishment sentiment that has taken root in Italy but which has worldwide parallels such as Britain's vote to leave the European Union and the USA election of President Donald Trump.

"We see the Financial Times write "Rome opens its gates to the modern barbarians"," he said, referring to an FT headline from Monday.

The parties say much of the 39-page draft has radically changed.

Only five percent of Italian government bonds are held by non-EU residents, making the chances of a massive flight of capital unlikely, ADM Investor Services market strategist Marc Ostwald said.

The two parties are planning a budget worth tens of billions of euros, with plans for a minimum universal income and a flat tax of 15% for low and middle earners.

The dollar stood tall against a basket of currencies on Thursday, as the euro retreated to a five-month low on concerns the political developments in Italy could cause wider disruptions in the common currency bloc.

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The coalition could also fall out with Brussels over its plans for a clampdown on immigration and a call to cancel all economic sanctions on Russian Federation.

There is still no word on who the parties want to lead the government.

But this week may go down as the moment when Mr Salvini and Mr Di Maio solidified their alliance on a platform - and tone - of conflict and defiance towards Brussels.

How risky for the EU? The top two finishers - the upstart anti-establishment 5-Star Movement and the nationalist League party - have been inching this week toward an alliance that would have a razor-thin majority in Italy's parliament. Mr. Mattarella granted them a few more days to try to hash out their differences.

Both have strong ideas about how to deal with Italy's ongoing migrant crisis and crushing debt without sticking to European Union regulations.

Populist and anti-immigrant parties have led European Union governments in Eastern Europe and even in neighboring Austria, but Italy - with the 28-nation European Union bloc's fourth-largest economy and population - would pose a political challenge of another magnitude to the alliance's liberal order.

With Italians increasingly restive over the failure to form a new government in Rome, the parties angling for power do not have the luxury of time.

Any deal "will be put to our members through a vote online", Di Maio said. "We can not go to Brussels with positions that are far apart", he said.

"I see in a certain establishment such a fear of change", he said. "It's important to stay the course", Dombrovskis said.

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