No deal yet: Italy's populist leaders differ on key issues

Matteo Salvini is the leader of the Northern League

Matteo Salvini is the leader of the Northern League

"Italy were already fancied to be the next country to exit the European Union at 9/4 and recent coalition talks have only extended their lead at the front of the queue to 6/4".

The emerging M5S-Lega coalition government is also demanding a revision of the Dublin rules that call for migrants to apply for asylum in the country of entry, while that await a decision on a possible resettlement.

A 39-page document agreed to Wednesday night drops the writeoff demand but says that euro-area government bonds already purchased by the European Central Bank under quantitative easing should not count towards the debt-to-gross domestic product ratio, according to the Five Star official.

The parties say much of the 39-page draft has radically changed. In recent days, Mr Salvini has been trying to push Mr Di Maio towards a more confrontational attitude with regard to Brussels on everything from the single currency to budget rules and migration policy.

In a Facebook video, Di Maio said that the establishment feared change but "the more they attack us the more I am motivated" to reach a deal.

The 5-Star Movement's appeal has surged in the south, where youth unemployment that stands at a rate of more than 50 percent in many areashas made Di Maio's pledge to guarantee a minimum income to the unemployed immensely attractive. But with the two parties having little in common, beyond a distrust of traditional politics, the discussions have been challenging.

Nicola Pasini, a political scientist with the State University of Milan, said the parties are not a natural fit. And the two parties have repeatedly said they feel no need to respect European commitments in implementing their programme.

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Success in forging a coalition would put the 5-Star Movement in Italy's national government for the first time. The League has been only a junior partner in governments led by billionaire tycoon Silvio Berlusconi, whose hopes to play kingmaker were dashed when his center-right Forza Italia party finished behind the League in March.

Mr. Chiapponi said that would probably result in instability.

This year's "State of the Union" conference opened in Florence on Friday (11 May), coinciding with the news that Italy is likely to get a coalition government of two Eurosceptic forces, both keen on leaving the eurozone.

As of Wednesday morning, officials involved in the talks insisted that Five Star and the League were finally close to a deal, though it was still unclear whether the two sides had settled on a choice for prime minister.

"The euro looks on track for further losses as market participants still appear to have more long positions on the euro to liquidate", said Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo.

The leaked documents, as well as Salvini's own public statements, make clear that the emerging Italian government is on course for a major standoff with Brussels if the incoming government pushes hard for a to renegotiation of Italy's contribution to the European Union budget as well as the fiscal compact.

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