5-Star, League want $296 bil. in Italian debt to be forgiven

Movement leader Luigi Di Maio speaks following a talk with Italian President Sergio Mattarella at the

Movement leader Luigi Di Maio speaks following a talk with Italian President Sergio Mattarella at the

On Wednesday morning Salvini said that negotiations were nearing conclusion, while Di Maio confirmed the two parties could wrap up the "contract of government" within the day.

It revealed that the 5 Star Movement and the League were still discussing this week proposals that included a demand that the European Central Bank cancel €250 billion ($297 billion) of Italian government debt.

The two parties have spent the last six days drawing up a so-called "contract" meant to be the basis for a coalition government between the two groups following an inconclusive March 4 election.

Not so long ago a document as radical as the draft Italian coalition program that surfaced on Tuesday night would have sent the markets into meltdown. Both parties have made clear they intend to fight the EU's Stability Pact.

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Italy's 10-year bond yield jumped almost 19 basis points to 2.13 percent, its highest level since early March and the biggest one-day rise since March 2017, while Italian bluechip stocks fell 2.5 percent.

What do the two parties want?

The League has promised to introduce a flat tax rate of 15%, which would tax revenues by some 80 billion euros (RM376 billion) per year, while 5-Star has pledged new welfare payments for the poor costed at around 17 billion euros (RM80 billion). Italy's debt mountain totals more than 130 percent of national output is the highest in the Eurozone after Greece's.

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.

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Di Maio told reporters in parliament "the recipe to lower public debt is by investments and expansionary policies".

Only five percent of Italian government bonds are held by non-EU residents, making the chances of a massive flight of capital unlikely, ADM Investor Services market strategist Marc Ostwald said.

The Northern League firmly opposes current European Union budget rules.

For instance, the EU's Migration and Home Affairs Commissioner Dimitris Avramopoulos said he hopes Italy's policy on asylum seekers does not change under the new government. It might also dismay Italian President Sergio Mattarella, who has repeatedly stressed the importance of maintaining a strong, pro-European stance.

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Both M5S and League have a deep history of Euroscepticism and while 5-Star has moderated its position considerably in the past 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. Their plans could also challenge European Union rules. The policy program will probably be published Thursday, 5-Star said.

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