Italy's Populists Edge to Policy Pact as Berlusconi Divides

(Bloomberg) -- Italy’s euroskeptic League and the Five Star Movement are narrowing policy differences, an adviser to League leader Matteo Salvini said, strengthening chances the two populist parties could join up in a government.

The biggest hurdles to an alliance between the center-right and the Five Star Movement remain Five Star chief Luigi Di Maio’s insistence on the premiership and his veto on ex-premier Silvio Berlusconi’s Forza Italia party, Armando Siri, an economic adviser to Salvini, said in an interview.

Italy's Populists Edge to Policy Pact as Berlusconi Divides

“We’ve found common ground on policies, we can work together on that, but we’re still distant from each other on personal issues,” said Siri, 46, a senator for the League who’s tipped as a possible economic development minister. “Di Maio needs to take a step back on the premiership, and he can’t impose vetoes. There is no Berlusconi problem.”

President Sergio Mattarella resumed party talks for a second day on Thursday in an attempt to break a month of post-election gridlock in the euro area’s third-biggest economy. While both Salvini and Di Maio fell short of a parliamentary majority in the March 4 general election, they’re in the driver’s seat in efforts to stitch together a government.

After meeting Mattarella, Salvini told reporters Five Star must be involved “if we want the government to last” but he warned that no government would be formed “if everyone insists on personal factors.” Berlusconi, the League’s junior ally in the center-right alliance, said the next government must be based on the bloc and Salvini, with priorities including jobs, the economic gap between north and south Italy, taxes and immigration.

Berlusconi Factor

Di Maio proposed Tuesday a government pact with the League or the governing Democratic Party but ruled out any deal with Berlusconi. Salvini, meanwhile, has ruled out breaking with the bloc to join Five Star.

Di Maio is expected to ask the president for more time and may offer a “diarchy” to Salvini after regional elections in late April, with Di Maio becoming premier and Salvini playing another role, newspaper Corriere della Sera reported Thursday, without citing anyone.

The League and Five Star have converged on policies including lower taxes, state grants for the unemployed, scrapping an increase in the retirement age and “expelling illegal immigrants,” Siri said.

“We’ve opened to what Five Star calls a citizen’s income, as long as it’s not welfarism,” Siri said. “We see a temporary form of income that helps people to find work.”

Budget Overshoot

The League campaigned for a 15 percent flat tax, while Five Star called for a guaranteed income for the poorest. Their electoral bases are very divergent, with the League based in Italy’s rich industrial north, and Five Star strongest in the depressed south.

The two parties will begin formal talks next week with the goal of proposing similar measures in separate draft budget plans before parliament, Siri said. “The closer we get on the draft budget plans, the more this could help a possible government accord,” Siri said.

Siri said the League doesn’t intend to exceed the European Union’s 3 percent limit on Italy’s deficit-to-gross domestic product ratio “but we won’t be obsessed by this parameter. If we need a small overshoot -- 3.1 or 3.2 percent -- to ensure real growth, we’ll live with that.”

Parliament is scheduled to debate a three-year draft budget submitted by the center-left government of outgoing premier Paolo Gentiloni by April 10.

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