League-Led Italy Government Wouldn’t Ditch Euro, Lawmaker Says

(Bloomberg) -- A future government led by the rightist League, now Italy’s most powerful party, would remain committed to the euro and the European Union, a leading euroskeptic lawmaker said.

Any talk of “Italexit is much ado about nothing,” League Senator Alberto Bagnai, head of the upper house’s finance committee, said in an interview Monday. The tortuous Brexit process shows how difficult quitting the EU would be, he said.

Prime Minister Giuseppe Conte’s threat to step down if his two deputy premiers don’t cease their squabbling, and persistent tensions between the League and coalition partner the Five Star Movement, have fueled speculation the government could collapse, though both parties have said they want to continue.

Matteo Salvini, whose League soared in last month’s European parliamentary elections, would stand to make sharp gains if new elections were held. Salvini and Luigi Di Maio of Five Star have called the shots during the government’s stormy first year in office, each serving as a deputy premier.

Bagnai, an economics professor and adviser to Salvini, has written two books calling for the European monetary union to be dismantled. Elected with the League last year, Bagnai said in the interview he believes the government could stay in power another four years.

Bagnai and Queen Mary University of London professor Brigitte Granville wrote in a joint 2017 study that withdrawal from the euro area would allow Italy’s economic output to grow at a reasonable pace with a “persistent reduction in unemployment and the public debt-to-GDP ratio.”

‘No Intention’

Still, “Italy doesn’t want to leave the euro or the EU, the majority of voters don’t want to leave,” Bagnai acknowledged at his Senate office in Rome. Asked about the possibility of a withdrawal in a hypothetical League-led administration, he said, “having a parliamentary majority isn’t enough to tackle such a radical change, you need the loyalty of the state bureaucracy and a constructive attitude from other countries.”

Bagnai also said the current government has no intention to leave the common currency. “The issue of an exit from the euro or the EU is not in the government program, so now there is no plan, no proposal, no study about this scenario,” Bagnai said.

Watching Brexit from the sidelines has also thrown cold water on any Italian project to distance itself from the EU, Bagnai said. “We’re watching Brexit closely, the U.K.’s experience demonstrates to us the complexity of a process in which one member state separates its fate from that of the EU.”

Italian bond spreads have periodically widened during the first year of the populist government on comments from lawmakers that appeared to question the country’s commitment to the single currency.

Yields rose last week after the lower house approved a motion asking the government to accelerate payments to creditors and suppliers, even through securitization instruments and possibly mini-Treasury bills. The Treasury denied that any plans to issue the securities are being weighed at present.

“This is about the government dealing with the way businesses recover funds owed to them by the public administration,” Bagnai said. “It would be naive and stupid for anyone to think that substituting a tiny part of the currency for such payments would be the prelude to abandoning the euro.”

The so-called government contract signed by the ruling coalition’s parties last year included a reference to the introduction of notes to settle bills; some critics have warned that the mini T-bills could become a form of parallel currency or even a temporary form of payment to be used in a transitional period following an exit from the monetary union.

To contact the reporters on this story: John Follain in Rome at jfollain2@bloomberg.net;Lorenzo Totaro in Rome at ltotaro@bloomberg.net

To contact the editors responsible for this story: Ben Sills at bsills@bloomberg.net, Jerrold Colten, Dan Liefgreen

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