Plans put Italy on a collision course with EU
Italy's two anti-establishment parties yesterday promised to ramp up spending in a programme for a new coalition government, putting them on a collision course with the European Union despite watering down some of their most radical proposals.
The "contract" by the League and the Five Star Movement, the two parties that won the most parliamentary seats in inconclusive elections on March 4, has still to be approved by their memberships in informal votes to be concluded by tomorrow.
"Days and nights of work," League leader Matteo Salvini said on Twitter, where he distributed the final programme. "Do you like it?"
Mr Salvini said he and Five Star chief Luigi Di Maio would meet President Sergio Mattarella on Monday.
Mr Mattarella must give his blessing to the programme and their prime minister candidate, who has yet to be named, before a government can be formed.
The document, published after 11 weeks of political stalemate in the eurozone's third-largest economy, calls for billions of euro in tax cuts.
It also proposes additional spending on welfare for the poor, and a roll-back of pension reforms.
The euro sank on the latest developments yesterday and was headed for its fifth straight weekly fall against the dollar, in what would be a first for the currency since 2015.
"The possibility of a Eurosceptic government in Rome is shaking investor confidence... at this point a larger fiscal deficit and greater bond issuance [in Italy] does seem likely," said David Madden, a strategist at CMC Markets.
The euro gave up gains and fell 0.2pc to $1.1778 after the Italian parties outlined their economic plans.
It settled near a five-month low reached on Wednesday of $1.1763.
The final accord dropped a proposal that would have posed the most direct challenge to EU fiscal rules, and sought to assure rattled investors that the government blueprint did not include any future plans for an exit from the euro single currency.
An earlier draft, that was reviewed by Reuters, had called for the EU to create fiscal headroom for Italy by adjusting the formula used to calculate its debt burden.
The final version omitted that proposal but still called for a review of EU governance and fiscal rules - setting the stage for the bloc's biggest political challenge since Britain voted to leave the organisation two years ago.
The document is seen as the basis for governing for the entire five-year legislative term.
Since there are few specific estimates on the costs of the measures, economists have come up with their own based on previous drafts.
Carlo Cottarelli, a former senior International Monetary Fund official, estimated the annual cost of the measures at as much as €126bn, while the 'Corriere della Sera' newspaper estimated €65bn would be nearer the mark to enact the radical proposals.
In a live video streamed on Facebook, Mr Di Maio dismissed concern about the costs of the policies because, he said, they would stimulate growth which would increase state revenue.
He added: "And there is leeway in Europe that we have to reclaim to be able to spend."