As Italy moves closer to the formation of a government between the anti-establishment 5-Star Movement (M5S) and Lega (League), a leak to Huffington Post of a 40-page policy contract between the two Eurosceptic parties that details their roadmap rattled international markets on Wednesday.
M5S leader Luigi Di Maio and his Lega counterpart, Matteo Salvini, both claim that the two parties are no longer pushing for an Italian exit from the Eurozone. The leaked document, however, contradicts their most recent public proclamations as it includes a plan to negotiate a massive debt write-off to the tune of €250 billion.
The document – entitled Contract for a Government of Change – paves the way for a general confrontation with Brussels, as it envisages “immediately ending sanctions against Russia”, which have been in place since 2014 following Moscow’s invasion of neighbouring Ukraine. The sanctions have had a major knock-on effect on the Italian economy, as Russia is a top importer of Italian products and one of the top European tourist destinations for Russian travellers.
Salvini and Di Maio have not denied the authenticity of the document, but suggest it is an older version, with the latter making it clear that he wants to reverse the process of European integration to the pre-Maastricht Treaty-era and end EU-wide financial policy alignment.
The Maastricht Treaty was the 1992 agreement that, along with the 1957 Treaty of Rome, that formed the constitutional basis of the European Union.
“With courage, we will succeed in restoring power to the citizens and reinstate Italy’s rightful leading}place on the European stage,” Salvini said in a Facebook post.
The leaked documents, as well as Salvini’s own public statements, make clear that the emerging Italian government is on course for a major standoff with Brussels if the incoming government pushes hard for a to renegotiation of Italy’s contribution to the EU budget as well as the fiscal compact.
The emerging M5S-Lega coalition government is also demanding a revision of the Dublin rules that call for migrants to apply for asylum in the country of entry, while that await a decision on a possible resettlement.
As Italy’s sovereign debt has reached 130% debt-to-GDP ratio, the incoming the anti-establishment parties are set on introducing a universal basic income of €780/month at an estimated annual cost of €17 billion and trimming the overall tax burden by slashing VAT and introducing a flat corporate tax, while all the while calling for EU matching funds.
While speculation abounds as to who leaked the document, Italy’s borrowing costs jumped and stocks slid once the leak was made public.
Though the markets are not panicking, the Euro lost ground against the US dollar.
Japan’s Nomura Holdings noted that 69% of Italy’s sovereign debt is owed to domestic investors and yields are spread over time. Moreover, Italy is by far the biggest beneficiary of the European Central Bank’s quantitative easing programme, which maintains sovereign debt yield at low levels.
Italian debt offers higher debt than that of Spain, Portugal, or France and demand is still strong in a low yield environment.