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Italy's populist coalition: What you should know

They reject years of EU austerity and want to renegotiate Italy's debt

Italy's populist coalition: What you should know

They reject years of EU austerity and want to renegotiate Italy's debt

01 June 2018 Friday 18:52
Italy's populist coalition: What you should know

Italy's new populist government has been sworn in, ending months of political uncertainty.

The anti-establishment Five Star Movement and right-wing League have gone into coalition, preparing to set the eurozone's third-biggest economy on a path of tax cuts, a guaranteed basic income for the poor and deportations of 500,000 migrants.

They reject years of EU austerity and want to renegotiate Italy's debt.

So what will this government, led by law professor Giuseppe Conte, mean for Italy and the rest of Europe?

Italy's future in the euro

Neither Five Star nor The League are fans of the single currency.

League leader Matteo Salvini said not long ago that the euro was "a mistake" for Italy's economy, while Five Star had wanted a referendum on Italy's future membership.

But they have dropped their initial ambition of exit from the euro and now talk of trying to reform it from within.

Not everyone is convinced by their change of heart. France's Economy Minister Bruno Le Maire earned a rebuke from the leader of The League by warning the populist parties to respect Italy's budget commitments.

The markets are wary, too. Italy's borrowing costs have touched levels not seen since 2016.

What do populist parties plan for Italy?

Italy was ravaged by the 2008 financial crisis that left the economy some 6% smaller and three million more people in poverty.

The answer for The League and Five Star is to move Italians out of poverty. But their policies will cost tens of billions of euros, for a country with the second biggest public debt in the EU after Greece. It stands at 132% of national output.

Guaranteed income for the poor

Poor families will get a €780 (£682; $919) basic monthly income, provided recipients actively seek work, the parties say.

It is a popular idea but one that will cost an estimated €17bn to implement.

Two income tax rates

Its most expensive policy is the idea of two "flat tax" rates set at 15% and 20%.

Families would receive a €3,000 annual tax deduction based on household income. Sales and excise tax increases next year, worth €12.5bn, will be scrapped.

The 58-page joint pact, or "contract", does not explain how all the extra spending will be financed. But economists estimate it could cost some €50bn in lost revenue.

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