Italy’s Salvini returns to Rome to tackle coalition row


MILAN (Reuters) – Deputy Prime Minister Matteo Salvini said on Friday he will halt an election tour in the north of Italy and return to Rome to settle a row within the government over a tax amnesty as financial markets sold off Italian assets.

“Today I’m in Trentino but tomorrow I’ll fly to Rome to solve the problems. No more arguing,” Salvini, who is also leader of the ruling League party that governs with the 5-Star Movement, said in a statement.

On Wednesday, Luigi Di Maio, head of the anti-establishment 5-Star Movement, said the text of the amnesty had been “manipulated” after his party had signed off on the measure in cabinet, raising doubts about the stability of the coalition government that took office in June.

While 5-Star has opposed amnesties in the past, the right-wing League, with its traditional voter-base of self-employed businessmen, is more favorable.

The cabinet this week signed off on an expansionary 2019 budget, boosting welfare spending, cutting the retirement age and hiking the deficit to set up a showdown with authorities in Brussels over compliance with EU rules.

Key policies for next year will be funded by the tax amnesty, which includes several schemes to allow people to settle disputes with the authorities by paying a limited sum. The amnesties are targeted to raise about 8 billion euros.

The main scheme involved people who have failed to declare up to 100,000 euros of earnings during the last five years, on which they will be able to pay a rate of 20 percent.

The spat broke out because it emerged that in the final draft to be sent to parliament the 100,000 euros referred to each of a series of taxes evaded, rather than to the overall total. 5-Star said this was unacceptable and it had been tricked.

The political turbulence comes on top of a dispute with the European Commission over the budget which is alarming markets.

The spread between yields on Italian benchmark government bonds and the German equivalent widened on Friday to a 5-and-a-half-year high of 337 basis points and Italian bank shares plunged.

In the first formal step of a procedure that could lead to Brussels rejecting the budget and to fines against Italy, the Commission sent Rome a warning letter on Thursday.

The document said the budget appeared to be in “particularly serious non-compliance” with EU rules and its deviation from targets was “unprecedented”. It gave Rome until Oct. 22 to respond.

Economic Commissioner Pierre Moscovici, who handed the letter to Italy’s Finance Minister Giovanni Tria, is due to hold a news conference in Rome on Friday at 1330 GMT.

Salvini played down the internal government rift in an interview with Il Messaggero daily on Friday, saying: “There is absolutely no government crisis”.

But Giancarlo Giorgetti, a cabinet undersecretary and high-ranking League official warned 5-Star not to “continue to see conspiracies at every turn.”

Additional reporting by Giuseppe Fonte, writing by Giselda Vagnoni: Editing by Gavin Jones and Janet Lawrence.

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