Italy's 5-Star, League reach final coalition deal, unveil government program


NEW YORK, May 16 (Reuters) - Italy's borrowing costs jumped on Wednesday and the country's stocks slid after reports that the two parties seeking to form Italy's next government might seek debt forgiveness, while the US dollar rallied further to a five-month high.

The Five Star leader Luigi Di Maio and Mr Salvini are continuing negotiations on a policy programme. In it, the parties said they planned to ask the European Central Bank to forgive 250 billion euros ($296 billion) of Italian debt purchased under the euro zone central bank's quantitative easing (QE) programme.

"A minister from the League who would work on security and border control would be a guarantor that whoever comes to Italy has the right to do so", he said. Italian government bonds lost more ground on Friday, with 10-year yields hitting a seven-month high. The euro fell to a five-week low against the dollar, and Italy's benchmark 10-year bond was set for its biggest one-day gain since July of last year.

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. The ideas in the draft programme underscore the great difficulties in finding the resources needed to pay for promises the two rival parties made to their voters during the campaign. Their spending plans, which include and revision of a 2011 pension reform, slashing the main tax rate for companies and individuals to as low as 15 per cent, which is popular among the League's base of small business owners in northern Italy, and a guaranteed monthly income for the poor, a proposal particularly popular in the south of Italy, are potentially destabilising for Italy's precarious public finances as they would cost tens of billions of euros at a time when the economy already suffers from high debt levels and growth is the most sluggish among countries that share the single currency.

Both leaders said they would not move ahead with their alliance without an endorsement from their grassroots. But with Italy's public debt at more than 130% of GDP, the measures will be hard to achieve, undoubtedly leading to clashes with the EU.

Kuwait urges United Nations to condemn Israel and protect Palestinians
Groups of demonstrators moved closer to the border fence, burned tires and threw stones or firebombs. It also called on Israel to respect the basic human rights of Palestinians as well as global law.

News of the draft accord has caused concern in Brussels, where European Commission vice president Valdis Dombrovskis told the EU parliament that Italy's new government should stick to fiscal discipline and keep reducing public debt.

The pan-European FTSEurofirst 300 stock index rose 0.51 percent. The sanctions have had a major knock-on effect on the Italian economy, as Russia is a top importer of Italian products and one of the top European tourist destinations for Russian travellers. He declined to comment on the outcome of the coalition talks.

The League-Five Star draft document also states their "intention to oppose" global trade treaties such as the EU-Canada Comprehensive Economic and Trade Agreement (CETA), the Transatlantic Trade and Investment Partnership (TTIP), and ongoing negotiations to grant China market economy status (MES).

Mattarella has repeatedly stressed the importance of maintaining a strong, pro-European stance. Both groups have a history of euroscepticism. 5-Star has moderated its position over the previous year, but the League still wants to leave the eurozone as soon as politically feasible.

Each party plans to consult its supporters over the weekend to see if they back the possible pact for government. The policy programme will probably be published on Thursday, 5-Star said.