Five-Star leader says he will defend Italy's euro membership

 Five-Star leader says he will defend Italys euro membership

By Valentina Za and Giuseppe Fonte

MILAN (Reuters) - Italy's Deputy Prime Minister and Five-Star leader Luigi Di Maio said on Sunday he was committed to preserving the country's membership of the euro zone.

Rome's anti-establishment government is striving to reassure investors after a draft 2019 budget driving the deficit higher prompted a market sell-off and sent the risk premium that Italian bonds pay over safer German paper to a 5-1/2 year high of 3.4 percentage points.

"We understood from conversations with people from the ECB (European Central Bank) and the markets, meaning investors, that the (bond yield spread) jumped because there is a concern that this government wants to leave the euro or the European Union," Di Maio told RAI state television.

"I want to say it here, and there will be other solemn occasions to reiterate it as a government and a political party, ... there is no Plan B (to leave Europe) but only Plan A which is to change Europe," Di Maio said.

"As long as I'm head of this movement and a minister of this government I'll always guarantee that Italy remains within the euro and in Europe," he added.

The ECB declined to comment on Di Maio's remark about conversations with people from the central bank.

Euro break-up fears have resurfaced since a coalition comprising the anti-establishment 5-Star and the eurosceptic League party came to power in Italy in May. Foreign investors have shed 67 billion euros ($77 billion) in Italian government bonds since then.

Faced with a spike in debt costs which is undermining the country's banks and could risk choking off the economy, the Rome government has sought to strike a more conciliatory tone over the budget but it has so far stopped short of saying it may revise down next year's deficit goal.

A government source told Reuters Economy Minister Giovanni Tria, Prime Minister Giuseppe Conte and Foreign Minister Enzo Moavero Milanesi had unsuccessfully pushed for a reduction of the deficit target at a cabinet meeting on Saturday.

Di Maio said the government was preparing a letter in reply to the EU Commission's criticism of the budget which would be sent on Monday with the Commission expected to react shortly after that.

"I hope the explanations we will provide over a long discussion process ... could lead the Commission to share the goals we have set," he said.

The Commission has labelled Rome's plan to lift the budget deficit to 2.4 percent of domestic output next year from 1.8 percent in 2018 an unprecedented breach of EU fiscal rules.

Credit rating agency Moody's on Friday downgraded Italy's debt to one notch above junk status citing concerns over the government's budget plans.

Di Maio said he hoped the Commission would take into account in its assessment Italy's strengths such as the private sector's low debt and high household wealth, which Moody's cited among reasons supporting a 'stable' outlook on the rating.

He denied however the government was considering a wealth tax to help reduce Italy's 2.3 trillion euro public debt.

After riding popular anger at the austerity measures Italy adopted in response to the euro zone crisis of 2011-2012, the League and the 5 Star want to lower the retirement age and provide a basic income for the poor.

Di Maio said Italy had a chance to prove public debt could be reduced by "investing in social rights" and trigger important changes across Europe.

Di Maio said the 5-Star, founded by comedian Beppe Grillo, was working to present in January-February a programme that brought together similar grassroots movements from other European countries with the goal to "give back a heart and humanity to European institutions."

($1 = 0.8686 euros)

(Editing by Adrian Croft)

This story has not been edited by Firstpost staff and is generated by auto-feed.

Updated Date: Oct 22, 2018 00:05:41 IST