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Italy’s incoming government wants to lift Russia sanctions and rewrite EU rules

  • The left-wing Five Star Movement and the far-right Lega released their plans for the next executive Friday morning.
  • The plan would potentially end more than two months of political instability in the third largest euro zone economy.
  • The agreement, revealed Friday, also called for an end to EU sanctions on Russia.
Luigi Di Maio, Leader of 5-Star Movement (M5S) leaves the parliament after a new day of meetings for the formation of the new government on April 26, 2018 in Rome, Italy.
Antonio Masiello | Getty Images
Luigi Di Maio, Leader of 5-Star Movement (M5S) leaves the parliament after a new day of meetings for the formation of the new government on April 26, 2018 in Rome, Italy.

The power-sharing agreement between Italy's two populist parties is likely to raise concerns for officials at the European Union.

The left-wing Five Star Movement (M5S) and the far-right Lega are on the brink of clinching power in the southern European nation, forming a coalition after neither party gained enough seats to govern alone at March elections. They released their plans for the next executive Friday morning which would potentially end more than two months of political instability in the third largest euro zone economy. The plan will be voted on by their members over the weekend and, if approved, could bring further problems for the EU.

Their plan aims for a "necessary" re-discussion over European treaties, a "reduction" of the powers coming from Brussels, and a return to a pre-Maastricht setting.

Under an accord signed in the city of Maastricht in 1992, European countries are supposed to comply with euro-wide fiscal rules. This means that their debt-to-GDP (gross domestic product) ratio should not exceed 60 percent and their public accounts should not register a deficit above 3 percent of GDP. Italy's debt stands at about 132 percent of GDP and the country registered a deficit of 2.3 percent in 2017.

The two Italian parties want to increase public spending when in power. As a result, they want a relaxation of EU rules to be able to fill those campaign promises. However, some Brussels-based officials have been sending public warnings. The European Commissioner Valdis Drombroskis said earlier this week that independently of who's in charge in Italy, the government will have to respect the EU rulebook.

The agreement, revealed Friday, also called for an end to EU sanctions on Russia. Since the annexation of Crimea, in 2014, the EU has applied restrictions to Russian companies and citizens. The document included some criticism of the EU's response to migration. Italy is, along with Greece, the biggest recipient of illegal migration from war-torn countries. Some member states have refused to receive some of those migrants and give them shelter.

M5S and Lega also demand a renegotiation of how much Italy pays into the EU budget. Rome is one of the top contributors to the common European basket, which is used to pay civil servants, infrastructure projects across the region, as well as sponsoring student exchanges, among others.

The two parties also included a line on trade, saying they are against large trade deals, like the one signed with Canada and the agreement that was being negotiated with the U.S. prior to the arrival of the President Donald Trump administration.

Italian borrowing costs surged following the announcement of the government program. The yield on the 10-year Italian note rose to 2.21 percent at about 11.40 a.m. London time Friday. The sovereign bond was on track for its biggest weekly jump since June 2015.

The euro also fell on the news to $1.1775 from $1.1810.