Italy's populists aim to challenge European Union on debt and migrants

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"From Europe we have the umpteenth unacceptable interference by unelected officials", League leader Matteo Salvini said on Tuesday.

The two populist parties have been holding talks aimed at forming a coalition government and ending 10 weeks of stalemate following an inconclusive election on March 4. Leaked drafts of their government "contract" include provision for a "conciliation committee" to settle expected disagreements.

"We need to be able to speak with a single voice, to say to the European Union, to which we pay many billions of euros every year, that for us Italians come first", the League's economics chief Claudio Borghi said, echoing US President Donald Trump's rallying cry "America First".

USA bond yields have risen after data this week showed a solid rise in US retail sales, suggesting the USA economy is on a stronger footing in the second quarter. 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.

The League has promised to introduce a flat tax rate of 15%, which would tax revenues by some 80 billion euros (RM376 billion) per year, while 5-Star has pledged new welfare payments for the poor costed at around 17 billion euros (RM80 billion).

For instance, the EU's Migration and Home Affairs Commissioner Dimitris Avramopoulos said he hopes Italy's policy on asylum seekers does not change under the new government. The bloc's budget rules require it to cut the debt pile aggressively under the "fiscal compact", which both parties want scrapped.

Bets that the Federal Reserve will in fact be an outlier in tightening monetary policy among major central banks and signs the euro zone's economy recovery has peaked has seen the euro slide from three-year highs of above $1.24 in April.

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"If the market continues to trade off US yields and diverging economic data between the USA and European Union, it's hard to argue against the current direction in yields or the dollar", Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore, said in a note.

Borghi called on 5-Star to recognise the need to take on Brussels and got a response from its leader Luigi Di Maio.

According to Italian media reports, their nominee for Prime Minister is likely be from a "third party" and will have to be able to make the eurosceptic nature of the new government workable with Brussels.

Both parties have a history of Euroscepticism.

Salvini, saying he was "optimistic but realistic" about a deal, took rhetorical aim via social media at European Union migration commissioner Dimitris Avramopoulos. 5-Star has moderated its position considerably in the past year, rowing back on a previous plan to hold a referendum on Italy's membership of the currency bloc.

President Sergio Mattarella, who has repeatedly stressed the importance of maintaining a strong, pro-European stance, may also be dismayed at any deal the League and 5-Star come up with. "The would-be coalition's denials that leaked draft policies were ever concrete plans also helped smooth markets", said Ken Odeluga, an analyst at City Index.

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