Salvini, on Campaign Trail, Says Italy May Break EU Debt Rules

(Bloomberg) -- Deputy Prime Minister Matteo Salvini sent ripples through financial markets on Tuesday, saying Italy could be ready to break European Union fiscal rules, on the same day his coalition partner called on him to stop “fanning the flames” with critical comments about the government.

“If we need to break some limits, like the 3% or the 130-140%, we’ll go ahead,” League party chief Salvini told reporters in Verona, while campaigning ahead of this month’s European parliamentary elections. Salvini was referring to the bloc’s limits on budget deficits and government debt as a share of economic output.

In an interview with la Repubblica published earlier Tuesday, Salvini’s coalition partner and sometime rival, Deputy Prime Minister Luigi Di Maio of the Five Star Movement, called on the League leader to tone down the internal attacks that have threatened the government’s shaky coexistence.

“Enough fanning the flames,” Di Maio told the daily newspaper, charging that Salvini’s aggressive tone has opened the door to extremist forces. “The ultra-right is a danger.”

Savvy campaigning and well-timed attacks against Five Star have made the League the dominant player in the government, with its support rising since the two parties took office in June.

‘Not Our Problem’

But after a week in which the League suffered its first major political defeat in just under a year in government and took losses in local elections in Sicily, Salvini’s comments Tuesday may have been a bid to retake the initiative; Brussels-bashing has been a popular campaign theme for both Five Star and the League, which are contesting the European elections separately.

“Until unemployment is halved in Italy, until we reach 5%, we’ll spend everything that we have to spend,” Salvini said. “If someone in Brussels complains, that’s not our problem.”

Yields on Italian two-year bonds climbed as much as 10 basis points to 0.72%, the highest level since Feb. 8. The 10-year yield spread over Germany rose five basis points to 282 basis points, a three-month high.

Di Maio told Repubblica he won’t step down as party leader if the Movement scores under 20% in the European elections and that the results won’t lead to a cabinet reshuffle, with more ministries going to the League, which is widely expected to emerge as the larger party after the vote.

That outcome would flip the script of last year’s national election, when Five Star finished first. The League has not requested the premiership in the event it becomes the largest party in the coalition, Di Maio said. Salvini taking over as premier is “a scenario that doesn’t exist,” Di Maio told Repubblica.

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