Italy’s League and 5-Star make ‘significant steps’ towards government deal

Leader of Lega party Matteo Salvini talks to the media after meeting with Five-Star Movement (M5S) leader Luigi Di Maio (not pictured) in Rome, Italy, 10 May 2018 [Massimo Percossi/ANSA/EPA/EFE]

The anti-establishment 5-Star Movement and far-right League have made “significant steps” towards forming a government, the two parties said Thursday (10 May) as Italy looked to end nine weeks of political deadlock.

The two groups, which are hostile to European Union budget restrictions and have made electoral pledges that would cost billions of euros to implement, entered into negotiations on Wednesday just as a swift return to the polls looked inevitable.

“Significant steps forward have been made on the composition of the government and on the (nomination) of a prime minister,” a joint statement said following a meeting between League leader Matteo Salvini and 5-Star chief Luigi Di Maio.

They gave no indication of who might lead the administration or who could take charge of the key ministries.

“I cannot disguise my joy and happiness that we can finally start solving Italy’s problems,” Di Maio said on Facebook.

Split on Europe

Although both forces were originally eurosceptic parties, 5-Star Movement and the League have since split on the issue of Europe.

Salvini advocates renegotiating European treaties, and insists the euro is doomed to fail.

5-Star leader Luigi Di Maio has made overtures towards the bloc. His MEPs have rarely sided with eurosceptics in the European parliament. 5-Star MEPs broke their alliance with the anti-EU UK Independence Party in favour of the Alliance of Liberals and Democrats for Europe (ALDE), but ALDE declined, citing deep-seated incompatibilities.

ALDE rebuffs Italy's 5 Star bid to join parliamentary group

The Liberals in the European Parliament have turned down a request from the anti-establishment 5 Star Movement to join their group, putting Italy’s second-largest party in an awkward position as it had already left its former partners.

Italian President Sergio Mattarella, who has the final word over the make-up of any new administration, has given the two sides until Sunday to tell him about the outcome of their talks.

“They asked us for time until Sunday and on Sunday we expect an answer,” a source at the president’s office said.

News that a deal was at hand pushed the gap between Italian benchmark bond yields and the safer German equivalent to its widest in seven weeks over fears state accounts might take a hit. Italy’s top share index fell more than 1.5% to its lowest level of the month.

“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,” said IG Markets analyst Vincenzo Longo.

Italy has been stuck in political limbo since an inconclusive 4 March election that saw a centre-right bloc, including the anti-immigrant League, win the most seats, and the 5-Star emerge the largest single party by far.

Anti-establishment and far-right triumph in Italy election as count continues

The anti-establishment 5-Star movement and the far-right Northern League could have enough support for a majority after Sunday’s (4 March) general election, although some analysts believe such a coalition is unlikely.

5-Star had signalled for weeks it was ready to form a coalition with the League, but not with that party’s electoral ally, former prime minister Silvio Berlusconi, whom it sees as a symbol of political corruption after years of scandals.

Salvini had refused to abandon Berlusconi out of loyalty to the centre-right bloc, but the 81-year-old billionaire businessman finally agreed to step aside voluntarily late Wednesday, removing a major obstacle to an accord.

Even so, a government deal faces various difficulties.

Split on reforms

5-Star draws much of its support in the impoverished south while the League’s electoral base is the wealthy north. While 5-Star wants to introduce generous welfare benefits, the League wants to slash taxes.

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 a year, but opponents say it is unfair on ordinary Italians.

Both parties also want to renegotiate the EU’s fiscal rules to allow Italy to spend more. 5-Star has rowed back on a pledge to hold a referendum on Italy’s membership of the euro zone, but the League still calls the euro a “flawed currency” and wants to exit it as soon as is politically feasible.

Setting up a possible institutional clash in Italy, 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 at a conference on the state of the European Union in the central town of Fiesole.

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

Italy’s exit from Europe’s single currency is not among the priorities of the far-right League party, which is in talks to form a government with the anti-establishment 5-Star Movement, a top League senator said on Thursday.

“The European Monetary Union is destined to fail… It makes no sense,” Senator Alberto Bagnai, a League eurosceptic economist elected in March, told reporters. But he then added: “Exiting the euro is not at the top of our list of priorities.”

“Our top priority is helping growth,” Bagnai said, adding that the League wanted to increase the budget deficit to help achieve this. “The goal to balance the budget has destroyed our economy.”

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