A leaked draft of the coalition agreement between populist parties 5-Star Movement and the League revealed the Eurozone’s third-largest economy is planning to hit the European Union with a nightmare scenario which could divide members.
Should the parties get into power they will demand a renegotiation of Italy’s European Union budget contributions, the dismantling of a 2011 pension reform that raised the retirement age, and an end to sanctions against Russia.
The joint document will demand the ECB forgives Italy of €250 billion Italian benchmark BTP bonds bought under the bank’s so-called “quantitative easing” programme to help reduce Italy’s public debt. Italy’s debt mountain totals more than 130 percent of national output is the highest in the Eurozone after Greece’s.
The debt wipe would cut 10 percent off Italy’s debt/GDP ratio but the EU will be concerned this sends a negative message to other Eurozone countries still in the middle of tough austerity measures.
It could lead to a spate of Eurosceptic, populist parties making promises to clear EU debt.
German taxpayers will again be resentful that they are, in part, picking up the tab for another country’s economic mismanagement.
The leaked text also suggested the coalition was clearing the path for Italy to leave the eurozone, demanding the creation of “economic and judicial procedures that allow member states to leave monetary union”.
But the coalition quickly retreated, claiming the text, dated May 14, was “an old version that has been considerably modified”.
A new statement confirmed the new potential coalition had decided “not to call into question the single currency”.
The League and Five-Star have held six days of talks aimed at putting together a coalition government to end 10 weeks of political stalemate following an inconclusive election on March 4.
Both parties are keen to make good on their election promises and before the polls, M5S and the League both blamed the EU’s overbearing rules for Italy’s chronically weak growth, rising poverty, and voter resentment.
M5S leader Luigi Di Maio said yesterday he hoped a deal could be reached today that would subsequently be put to supporters of both parties to see if they backed the pact.
Both M5S and League have a deep history of Euroscepticism and while 5-Star has moderated its position considerably in the last year, rowing back on a previous plan to hold a referendum on Italy’s membership of the currency bloc, the League still wants to leave the Eurozone as soon as is politically feasible.
Hours after the document leak, 5-Star and the League issued a further joint statement saying they wanted to “reconsider” the Eurozone’s fiscal rules with Italy’s partners “in the spirit of returning to the pre-Maastricht set-up” — a reference to the treaty which laid the groundwork for monetary union.
With Italy currently writing the rulebook to its future relationship with the EU, Brussels has been left powerless to push back.
Last week Wolfango Piccoli, co-president of Teneo Intelligence, said taking on Brussels would be popular with Italian voters, and the new government had little to fear from the European Commission.
Mr Piccoli described the Commission as “very weak and on its way out”.
With just a year of its term remaining the Commission “can’t really do much other than put Italy’s finances under greater scrutiny, and markets don’t care about that”, he said.