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Italy 'very important' to European Union, says Juncker

Italy 'very important' to European Union, says Juncker

The 5-Star Movement and the League have been negotiating a power-sharing deal since last Wednesday, when Salvini's right-wing coalition partner, former Prime Minister Silvio Berlusconi, gave the green light for the pair to form a government without his Forza Italia party.

Luigi Di Maio, the leader of M5S, emerged from a meeting with the League's counterpart Matteo Salvini saying a pact could be sealed by Thursday evening.

The policies would cost many billions of euros and have spooked investors in Italian debt, shares and the euro.

Fresh elections in the autumn would probably be nearly inevitable if this latest attempt to form a government fails.

"European economic governance. must be rethought. including the single currency, in the name of a return to the pre-Maastricht spirit", says the latest version of the 40-page, 29-point draft document published on La Repubblica newspaper's online edition. Italy, along with Greece, has taken the brunt of the Mediterranean migrant crisis and has been credited with saving Europe's honour for its efforts to save lives at sea. There was still no word on the thorny issue of who would be prime minister.

The M5S, meanwhile, said that a draft of the M5S-League government contract, in which Italy's exit from the eurozone is contemplated and which calls for the European Central Bank to write off 250 billion euros in the nation's public debt, is out of date, stressing that the single currency is not in question.

Italy's 10-year bond yield jumped 14 basis points to 2.08 percent, IT10YT=RR its highest level since early March. It would make "a mockery" of the eurozone's fiscal rules, whereby the government must keep a tight lid on its budget deficit to start tackling its unsustainable debt pile of 130% of GDP. Di Maio told reporters in parliament "the recipe to lower public debt is by investments and expansionary policies".

European Union leaders meeting in Sofia on Wednesday are likely to be concerned about the rhetoric coming from the parties that could form a new Italian government as early as next week. "We don't want to be in a government that is similar to the ones we had over the past five years", said the League's Gian Marco Centinaio, one of Salvini's closest advisors.

With hard decisions to be taken, the League revived some of its campaign rhetoric, taking aim at European Union budget restraints which impose de facto limits on how much a government can spend to kick-start its economy. "But I won't comment in advance on the possible outcome of talks taking place on a coalition government", he said. However, the League still wants to leave the euro zone as soon as politically feasible. President Sergio Mattarella, who has repeatedly stressed the importance of maintaining a strong, pro-European stance, may also be dismayed. The two eurosceptic parties intend to water down recent labour-market reforms and have raised the prospect of a "parallel currency", an eventual replacement for the euro. Each party plans to consult its supporters over the weekend to see if they back the nascent government pact.

5-Star has adopted a softer line on migration and Salvini said on Monday this was another area of discord between the two sides.

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