May 16, 2018 / 12:34 PM / a year ago

Breakingviews - Italian radical agenda is a recipe for chaos

Northern League party leader Matteo Salvini talks during a news conference, the day after Italy's parliamentary elections, in Milan, Italy March 5, 2018. REUTERS/Stefano Rellandini - RC1F9A072560

MILAN (Reuters Breakingviews) - Italy’s mooted radical agenda is a recipe for chaos. A leaked government programme drawn up by likely coalition partners the 5-Star Movement and the League says countries should be able to exit the euro zone, alongside other unorthodox measures and spending pledges. The plan promises a confrontation with European Union partners that is not yet reflected in Italy’s relatively low bond yields. 

The draft government agenda, leaked on Tuesday, adds some spice to an already extensive list of unworkable promises that allowed the two parties to score big in March 4 election. The programme confirms they want to hand out more welfare – possibly using EU funds – cut taxes and lower Italy’s retirement age. 

The radicals also want the European Central Bank to forgive 250 billion euros of public debt - 11 percent of Italy’s massive pile - bought through its quantitative easing mechanism. Most controversial of all, the draft calls into question the irreversibility of the single currency by suggesting a mechanism to allow member states to leave if voters demand it.   

Other far-out proposals include setting up a so-called Conciliation Committee made up of coalition leaders and other officials, giving them the power to resolve disagreements but also rule on anything from foreign policy to national security. That would undermine the government and parliament. 

The League’s Matteo Salvini and 5-Star Movement’s Luigi di Maio have tried to backtrack from the draft. But it’s hard to believe the rapid change of heart is genuine, since the document is dated May 14. Italian borrowing costs hit two-month highs after the document was leaked. But Italy’s 150 basis point premium over Germany’s long-term debt is still below a crisis peak of over 5 percent in 2011. If the radical allies strike a deal this week, the premium may rise further. 

The leak itself might kill off the chance of the coalition. The two parties have yet to agree on a prime minister. It’s hard to see how any respected figure could endorse such a programme. Failure to form a government now would probably push Italy towards snap elections. But with the outgoing ruling Democratic party still weak, a new vote would yield more of the same. Italy’s showdown with Europe would only be delayed.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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