Five Star and Lega want another three days to conclude talks. Neither Di Maio nor Salvini would be Prime Minister.

A reader informed me yesterday that Five Star was pro-Europe and not Eurosceptic.

Compared to what?

Certainly Five Star leader Luigi Di Maio is a far cry from former Five Star leader, Beppe Grillo. But some of that change in positioning was little more than political expediency to win votes.

The platform now in the works includes a parallel currency, reduced immigration, and flat taxes.

Eurointelligence Comments

This is what real coalition negotiations look like. The leaders meet and set the agenda for sub-committees to talk about specific policy issues. That process will start in Italy tomorrow, when the deputy leaders of the two parties come together, but some of the outlines have already been drawn up by the leaders themselves.

What do we know so far? Five Star and Lega are very different political parties, but they have enough in common for a radical legislative agenda. The two sides seem to be inching towards a neutral prime minister, in other words neither Di Maio nor Salvini. The name mentioned by Italian newspapers this morning is that of Giampiero Massolo, a career diplomat who seems to be acceptable to both parties. Massolo will clearly only be the frontman. Power will rest with Di Maio and Salvini.

It will be interesting to see how the two sides will legislate together on issues that might affect Silvio Berlusconi personally. We don’t think he accepted to step aside and let Salvini run the show himself without any clandestine conditions. Any undertaking Salvini might have given him would be difficult for Five Star politically, though.

Corriere della Sera lists the following as the main legislative priorities. If implemented it would be the biggest shake-up of the Italian economic system in modern times.

Platform Provisions

  • The end of the pension reforms under Mario Monti; Five Star is softer on this point than Lega, but together the two parties can be expected to agree fundamental changes.
  • A flat tax on companies and people - in other words a massive tax reduction.
  • A study on the so-called minibot. This is a parallel currency based on future tax receipts, similar to the plans proposed by Yanis Varoufakis in Greece. The minibot was in the Lega’s election manifesto. Five Star is far less radical on the eurozone, having dropped the idea of a referendum, but also seeks changes that are incompatible with the the EU fiscal rules. A parallel currency stands a much greater chance of success in Italy, and it would go some way to solving the government’s fiscal dilemmas. The open question is whether it would constitute a slippery slope towards euro exit.
  • And a citizens’ income, which is Five Star’s big idea, to be implemented next year.

EU's Worst Nightmare

The Express describes the EU's Worst Nightmare as Eurosceptics Join Forces.

One of the first things the two parties are likely to agree on will be to scrap a 2011 pension reform which raised the retirement age and required further hikes over time. Economists say repealing the law would cost 20 billion euros ($24 billion) a year, but opponents say it is unfair on ordinary Italians.

Both parties also want to renegotiate the EU's fiscal rules to allow Italy to spend more. 5-Star has rowed back on a pledge to hold a referendum on Italy's membership of the eurozone, but the League still calls the euro a "flawed currency" and wants to exit it as soon as is politically feasible.

Setting up a possible institutional clash in Italy, President Mattarella made clear on Thursday that he did not want to see any confrontation with Brussels.

"To think that one can go-it-alone in Europe is knowingly deceptive in front of public opinion," Mattarella said in a pointedly pro-European speech at a conference on the state of the European Union in the central town of Fiesole.

Major Changes

President Mattarella can make all the pro-Europe noises he wants, but other than force new elections which would likely give Five Star and Lega a bigger majority, there is little he can do.

Major changes are coming but there is no way to pay for them.

Flat taxes and a tax reduction are good ideas. A guaranteed income is a bad idea, but it's on the way.

Both parties are staunchly anti-immigration.

A parallel currency is indeed a stepping stone to a break from the Eurozone.

This material is based upon information that Sitka Pacific Capital Management considers reliable and endeavors to keep current, Sitka Pacific Capital Management does not assure that this material is accurate, current or complete, and it should not be relied upon as such.

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