Italian parties agree basis for government deal, say no threat to euro

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Italy's 5-Star Movement and the far-right League have completed a joint policy program meant to be the basis for a coalition, with their respective leaders due to have the final word, party officials said on Wednesday.

Party leaders Luigi Di Maio of the 5-Star Movement and Matteo Salvini of the League were expected to present their governing plan to Italian President Sergio Mattarella on Monday but asked for a delay. "It's a good program but there are still one or two areas of difference for the leaders to decide on", he added.

While the two parties specified they had removed the section on possibly opting out of the euro, they made no mention about the suggestion the European Central Bank should write off this debt.

The Five Star Movement's Luigi Di Maio after talks at the presidential palace. Di Maio promised dialogue with the European Union, but warned that "we won't be subordinates to some Eurocrats".

While the coalition has ruled out an exit for now, Five Star has a track record of changing its political stripes at nearly any moment if it seems that doing so will boost its popularity.

The fiercely anti-EU party Lega will not be satisfied over the approach taken by Mr Di Maio's movement on the European Union, a problem that could become a deal-breaker, according to officials close to the negotiations.

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 European Union budget as well as the fiscal compact. It would also be Italy's first all-populist government.

Di Maio said the joint program the two groups are drawing up is "almost completed", and called on the League not to pull out at the last moment.

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Salvini said the League wanted "strong government and a tax and security revolution", but admitted it remained "far apart" from M5S on several issues.

Italy's 10-year bond yield jumped 14 basis points to 2.08 percent, IT10YT=RR its highest level since early March. The two parties dismissed the version as "old" and said they were no longer questioning the country's euro membership.

After Berlusconi refused to have anything to do with the 5-Star Movement, who he regards as "more unsafe than communists", Salvini and Di Maio set out to negotiate an agreement to join forces in government.

"In the end there has been a roar of applause, we all embraced each other", Casalino said.

News of the draft accord has caused concern in Brussels, where European Commission Vice President Valdis Dombrovskis told the EU parliament on Thursday that Italy's new government should stick to fiscal discipline and keep reducing public debt.

Europe's, and especially the eurozone's, biggest fear is that Italy plunges into the kind of economic meltdown that in 2015 came very close to catapulting Greece - led, remember, by a radical-left government that was hellbent on overthrowing the eurozone's rules - out of the single currency.

Pressure on Mexico's peso returned though as hopes for a new-look NAFTA trade deal with the US and Canada were pushed back and as the country's central bank said its systems had been hit by a 300 million pesos ($15.33 million) cyber attack.

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