After a series of false alarms over the past week, the Financial Times reported Friday that Italy’s anti-establishment Five Star Movement (M5S) and the far-right Northern League have finally agreed on a policy program, ending a monthslong stalemate.
The 57-page “Contract for a Government of Change” was published early Friday and includes a handful of key provisions that have, unsurprisingly, made bondholders nervous:
Here’s a roundup courtesy of the Financial Times:
- Universal basic income of €780 per person per month, funded in part through EU
- No mention of a referendum on membership of either the EU or the euro
- Agreement to meet the goals of the Maastricht Treaty
- No plans to ask the ECB to cancel debt
- Calls for airline Alitalia to be relaunched
- Flat tax to become a dual rate with deductions
- Seeks a strong contribution to EU immigration policy
“This government contract binds two political forces that are and remain alternative, to respect and achieve what they promised to citizens,” Mr Di Maio said, according to the FT. Five Star and the League made big gains in Italy’s general election back in March.
The euro sank on the news on Friday as it headed for what would be its fifth straight weekly fall against the dollar since 2015. Meanwhile, stocks in Milan hit their lowest level in a month.
Italian government bonds also retreated on Friday, sending 10-year yields to their highest levels in seven months as investors worried that the new ruling coalition was about to embark on a spending spree.
Demand for Italian credit-default swaps also surged, sending CDS to their highest levels since January.
The deal ends a lengthy stalemate that had persisted since Italy’s March elections. Recently, the party’s were facing the prospect of another vote either over the summer or early next year if they did not agree on a platform. The two parties still need to pick a prime minister.
Read the contract below: