Italy M5S leader says govt deal would be 'bomb' for establishment

Italy's 5 Star chief says policy agenda with League almost completed

5-Star leader Luigi Di Maio said he and League chief Matteo Salvini had completed their review of the program drawn up by party officials and they would present it to President Sergio Mattarella by Monday.

"I think we will close the contract this evening", he said.

"In short, trust towards Italy is bound to face heavy tests under a M5S/LN government, even if the two parties will not be able to implement their program in full", he said. In it, the parties said they planned to ask the European Central Bank to forgive 250 billion euros ($296 billion) of Italian debt purchased under the euro zone central bank's quantitative easing (QE) programme.

"The possibility of a eurosceptic government in Rome is shaking investor this point a larger fiscal deficit and greater bond issuance (in Italy) does seem likely", said David Madden, a strategist at CMC Markets.

"If (they). agree on a government program for Italy, French President Macron's European Union reform plans are likely to have largely failed once and for all", Commerzbank Chief Economist Joerg Kraemer said in a note.

Despite doubts over their unlikely union, Di Maio and Salvini became more emboldened to strike a deal after warnings from the European commission against the formation of a government that would disregard the bloc's stability and growth pact or jeopardise Italy's migrant policy.

It was not clear when these and other measures would be adopted, and there was still no word on the thorny issue of who would be prime minister.

The "contract" by the League and the 5-Star Movement, the two parties that won the most parliamentary seats in inconclusive elections on March 4, has still to be approved by their memberships in informal votes to be concluded by Sunday. Government bonds dropped, pushing the 10-year yield up by as much as 11 basis points to a 10-month high of 2.22 percent, and weighing on securities from Portugal and Spain.

The prospect of the first populist government in a founding member will send tremors through a European Union that scraped through the euro-area debt crisis and found fragile unity after the shock of Brexit, only to be confronted with multiple challenges by US President Donald Trump.

The 39-page draft, obtained by Huffington Post Italia, reflected the difficulties the two pre-election rivals face in finding the resources needed to pay for promises they made to their voters during the campaign. Di Maio told reporters in parliament "the recipe to lower public debt is by investments and expansionary policies". The spread is a "cynical board game of high finance", he said.

Losses in Asian share markets, however, were limited after US equities advanced on Wednesday, led by retail and technology shares, even as a rise in USA 10-year Treasury yields to an nearly seven-year high suggested more competition for equities. Berlusconi, 81, has warned the 5-Stars are unsafe for Italy and its democracy.

Both parties have a history of Euroscepticism. The policy programme will probably be published on Thursday, 5-Star said.

His latest position is still not consistent with Italy's commitment to balance its budget, and also out of line with the more confrontational stance of the League.

Each party plans to consult its supporters over the weekend to see if they back the possible pact for government.

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