Update 0850ET: While confusion continues to reign in its imitable Italian way, Bloomberg’s Ferdinando Giugliano notes that while we can only speculate over what issues still divide the League and the 5 Star Movement, we know from a leaked draft what separated them yesterday:
How much the government should be allowed to borrow to fund spending plans?
New income-tax rates?
Whether and how to regulate places of worship, including mosques?
What constraints (if any) should be set to a new income-support scheme?
Whether to scrap the balanced budget clause in Italy’s constitution?
Whether to scrap some controversial railway infrastructure projects in Northern Italy?
These all seems like very major issues from our perspective, which may explain this… the blast from the past PIIGS credit risk is starting to crack notably wider…
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Italy’s two-and-a-half month stalemate is finally coming to an end, and according to unnamed Bloomberg and Reuters sources, the leaders of Italy’s populist Five Star movement and Northern League have agreed on a final government program, one which to the market’s relief does not include a request to write down €250BN in debt held by the ECB.
… or maybe not: shortly after the flashing read headlines hit, the League said the government deal is not final, and nor is there a deal on premiership. Meanwhile, Italy’s Ansa newswire reported that according to its sources, a final government plan has not been sealed yet, and that negotiations are still ongoing on govt program and on the name of candidate prime minister.
In any case, here’s a summary of what we know so far courtesy of Bloomberg:
- Populist parties Five Star and the League have a deal on a program to form a coalition government, according to a party official, while news agency ANSA says the plan is not final
- Still no word on who will be nominated as prime minister
- The parties want to canvas their voters before presenting it to Italy’s president for approval
- The program calls for increased fiscal spending, tax cuts and reviewing international agreements
- It does not include a proposal to write off billions of government debt held by the ECB, as per an earlier draft
- Investors are wary of a radical shake-up in an EU founding member, with the yield premium to German bonds the widest since January
In a meeting in the Palazzo Montecitorio, Matteo Salvini and Luigi di Maio, the leaders of the League and M5S, respectively, are trying to decide who will be the next prime minister of Italy.
Meanwhile, the leaks about the government’s policy program appeared to dull concerns about a possible Italeave.
And while initial reports of a deal raised hopes, Five Star officials later denied that an agreement had been reached, leading to widespread confusion about the status of a deal.
- ITALY’S 5-STAR, LEAGUE PROGRAMME CONTAINS NOTHING THAT COULD CAUSE CONCERN OVER ITALY’S EURO MEMBERSHIP: RTRS
- ITALY POPULIST LEADERS AGREE ON POLICY PROGRAM: ANSA
- FIVE STAR, LEAGUE AGREE FINAL GOVERNMENT PROGRAM: OFFICIAL
Still, it appears that most outstanding items have been resolved:
- FIVE STAR’S DI MAIO: WE STILL DON’T HAVE PRIME MINISTER
- FIVE STAR’S DI MAIO: THE LARGEST PART OF ISSUES SOLVED
Meanwhile, as Bloomberg adds, president Mattarella’s office has made no secret of the fact that he is not amused — by Di Maio and Salvini starting with the program and dealing with the premiership only afterwards.
For Mattarella, it’s putting the cart before the horse — the “proper” procedure is for Mattarella to name a premier first, then he brings a list of ministers and his government plan back to the president.
While some hoped this added clarity would stabilize European assets, Italian BTPs continue to selloff, and the 10Y Italian yield was trading around 2.16%, as concerns over the parties’ anti-European sentiment trumps the fact that some agreement has been reached after all; meanwhile the Italian-German spread remains at the widest levels since January.
Equities are taking matters somewhat better, with the Stoxx 600 rising as much as 0.3% and the FTSE MIB reversing earlier losses to also trade 0.3% on the day.
Still, it appears those waiting for a concrete outcome will have to wait some more, as the full government plan will be available this evening (if then):
- FIVE STAR DI MAIO SAYS EXPECTS GOVT PLAN AGREED THIS EVENING