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Italy: Populist parties attempting to form government consider asking ECB to write off 218bn of country’s debt

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Populist parties attempting to form a government in Italyhave floated the idea of asking the European Central Bank (ECB) to write off 250bn (218bn) of the countrys debt.

A leaked draft document drawn up by the anti-establishment Five Star Movement and the far-rightLeague partyproposedconvincingthe ECB to canceldebt purchased under the bank’s quantitative easing programme.

The idea of requesting themassive relief package surfaced as the two Eurosceptic parties attempt to forge a coalition government after a two-and-a-half month stalemate in negotiations.

Claudio Borghi, the League’s economics chief, has since insisted the plans were no longer being considered as part of the agreement.

The ECB holds around 2.4tn (2.1tn) of government bonds under its quantitative easing programme.

Five Star and the League emerged as the two largest parties following the country’s general election in March, although neither group was able to secure a majority.

The contents of the leaked 39-page draft reflected the difficulties the two pre-election rivals face in finding the resources needed to pay for promises made during the campaign.

The League has pledged to introduce a flat tax rate of 15 per cent, which would lower tax revenues by an estimated 80bn (70bn) per year, while Five Star offered up new welfare payments for the poor worth around 17bn (15bn).

On top of that, both parties had vowed to scrap an unpopular pension reform, in a move that could cost the state a further 15bn (13bn).

Italy already has an enormous national debt equivalent to 130 per cent of its GDP, putting it second only to Greece inside the European Union.

The bloc’s budget rules require it to cut the debt pile aggressively under the fiscal compact, which both parties want scrapped.

The parties said on Tuesday they want to re-think the eurozone’s fiscal rules in the spirit of returning to the pre-Maastricht set-up, a reference to the treaty which laid the groundwork for monetary union.

The leaked document also proposed economic and judicial procedures that allow member states to leave monetary union, but the parties swiftly issued a statement insisting their programme did not contain plans to scrap the Euro.

Both groups have voiced criticism of the single currency, although Five Star has moderated its position considerably in the last year, rowing back on a previous plan to hold a referendum on Italy’s membership of the Euro.

The League, however, still wants to leave the eurozone as soon as politically feasible.

Additional reporting by Reuters

http://www.independent.co.uk/news/world/europe/italy-debt-populist-parties-european-central-bank-ecb-write-off-five-star-the-league-lega-a8355761.html

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