Italian spreads climb while M5S and Lega unveil government “contract”

EPA-EFE/GIUSEPPE LAMI

Italy's Five-Star Movement (M5S) leader Luigi Di Maio (C) leaves the Lower House of the Italian Parliament after meeting with Lega (Legaue) party leader Matteo Salvini (not pictured), in Rome, May 17, 2018. Di Maio said after the talks that he os confident that a deal with the League on the programme for a new government will be reached 'by the end of the day'.

Italian spreads climb while M5S and Lega unveil government “contract”


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The Five Star Movement (MS5) and the far-right Lega in Italy have concluded a programmatic deal, referred to as “the contract” on Thursday.

MS5 members were voting on Friday to ratify the agreement, while the League will consult supporters over the weekend.

The plan has been amended since the leaked document on Tuesday, which spooked financial markets. Gone are references to a Eurozone exit.

However, central elements of the economic programme remain in place.

The last version of the 58-page “contract” agreed between the two parties envisages a two-tier flat tax – 15 and 20% — on basic income and the recall of a 2011 pension reform act that raised the retirement age. More significantly, the programme also entails a commitment to a guaranteed basic income of €780 per month for job seekers and pensioners.

These commitments imply additional government spending to the tune of €100bn, which could mean a clash with Brussels over the fiscal compact. On Friday morning, the spread between Italy’s 10-year bonds and the German Bund continues to climb Friday, with the yield reaching 2.17%. The spread was hovering around the 130-points mark until Tuesday and is now near 155.

Matteo Salvini and Luigi Di Maio are due to meet President  Sergio Matarella on Monday to conclude the agreement, also announcing the name of a commonly acceptable prime minister.

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