ROME (Reuters) - Italian Deputy Prime Minister Matteo Salvini called on Tuesday for a new role for the European Central Bank, which should “guarantee” government debt in order to keep bond yields low.
Italy, whose debt is proportionally the highest in the euro zone after Greece’s, would have much to gain if the ECB were to buy states’ debt directly, though Salvini did not spell out exactly what he wanted the Frankfurt-based central bank to do.
Fresh from a victory in European parliamentary elections, the leader of the right-wing League said in a Facebook video that the EU’s “failed” fiscal rules should be rewritten with the focus on cutting unemployment, not capping budget deficits.
Speaking from a Rome rooftop as though he were already prime minister, Salvini said he wanted a top-level European conference to discuss how to boost growth and investment and new powers for the ECB to halt “speculation”.
Since his party won 34% at Sunday’s vote Salvini has stepped up promises to slash taxes and calls for new EU budget rules, unnerving financial markets which fear his plans will drive up Italy’s huge public debt.
Italian benchmark bond yields rose by 10 basis points on Tuesday, having already risen around 11 bps on Monday and marking the sharpest two-day rise in benchmark borrowing costs since the start of the year.
At the election the League doubled the votes of its coalition partner, the anti-establishment 5-Star Movement, potentially giving Salvini, who is interior minister, more clout in driving the policy agenda.
If 5-Star bows to the League’s demands it risks losing more support among its core voters. If it does not, that might trigger a government collapse and fresh elections which would be likely to reward Salvini.
The League chief said he wanted to cut taxes for Italian households with income below 50,000 euros ($56,000), at a cost of 30 billion euros for state coffers.
His words are unlikely to go down well with the European Commission, which Salvini said has prepared a warning letter regarding Italy’s public debt and could eventually slap a fine of 3 billion euros on Rome for breaching its fiscal rules.
Salvini challenged Prime Minister Giuseppe Conte, a former academic who is not from either ruling party, to convene the conference on “growth, jobs, investments and a debt guarantee so that we can work serenely without the anxiety over the spread”.
He said Italy’s economy was “healthy” and it was not right that it should have to pay higher yields than other euro zone countries.
($1 = 0.8939 euros)
Reporting by Gavin Jones; Editing by Alison Williams