Italy's Democrats Claim League, Five Star Had Euro Exit Plan

(Bloomberg) -- Italy’s Democratic Party signaled a return to campaign mode as it charged its rivals, the League and the Five Star Movement, with having prepared a plan to pull the country out of the euro if they had succeeded in forming a government together.

The two parties gambled with the country’s well-being “with a project to take Italy out of the euro zone, and they did it in a ruthless way,” acting PD leader Maurizio Martina wrote on Twitter. League head Matteo Salvini and Five Star chief Luigi Di Maio have both denied any plan to leave the euro.

The charges from the PD leader are an early broadside in what’s shaping up to be a new electoral campaign with the dividing line running through Italy’s European future. That’s stoking market turbulence, as investors take fright at the prospect of deepening political turmoil in the euro-area’s third-biggest economy.

The political crisis in Italy sent government debt plunging and triggered a flight to safety worldwide on Tuesday, with gold and the yen strengthening as European stocks dropped.

Martina’s comments, made after a planned Five Star/League government collapsed, stem from a 2015 speech by Professor Paolo Savona, the populists’ choice for the finance minister post in their failed government.

A conference lecture that year by Savona was dedicated to a “Plan B” to ensure Italy would be “prepared” to abandon the single currency if the future of the country were at risk, according to a copy of the lecture posted on a website the professor has used recently for statements on political matters.

President’s Veto

Italian President Sergio Mattarella on Sunday night vetoed Savona’s candidacy as finance minister, saying the choice threatened to destabilize markets and even risk a euro exit. The veto on Savona derailed the populists’ efforts to form a government, prompting a call from the two parties for new elections.

Latest polls suggest the League has been the main beneficiary of the stasis since the inconclusive March 4 election. Salvini’s party is credited with 27.5 percent of voting intentions, up from 17.4 percent, according to an SWG opinion poll carried out on May 23-28. Five Star was down to 29.5 percent from 32.7 percent.

Of the more established parties, Forza Italia, which ran in March in an alliance with the League, dropped to 8 percent from 14 percent. The Democratic Party was at 19.4 percent compared to 18.7 percent in the elections.

Senior League lawmaker Giancarlo Giorgetti, a close adviser to Salvini, on Tuesday denied the populists ever had a plan to leave the euro. “You must be joking,” he said in an interview with daily Corriere della Sera. “Among us, there were some people who were pushing, but the option never went into the contract,” he said, referring to the Contract for Government the League and Five Star drew up as their agreement to run the country.

Secret Plan

Referring to Savona’s candidacy, Giorgetti told Corriere, “Savona had told us that he was available only if this option was not a feature of the plan, he intended only to negotiate with Brussels.”

Italian daily la Repubblica reported on Tuesday that the League had a secret plan to leave the euro “overnight” after taking power with Five Star.

The speculation is still driving a market meltdown that saw European stocks drop 1.3 percent as of 2:08 p.m. in Rome and the euro down 0.6 percent. Italy’s government debt bore the full brunt of the damage, with yields on two-year notes soaring as much as 192 basis points to the highest level since 2012.

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