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Italy's prime-minister-designate Mario Draghi has promised future coalition partners not to raise taxes as he builds a government which will rewrite plans for spending tens of billions of euros in emergency European Covid funds, refocussing it on reducing subsidies and boosting investment, sources close to his informal transition team told MNI.

Other promises by the former European Central Bank president include a commitment to increasing Italy's guaranteed minimum income, sources from the populist Five-Star Movement said, adding that Draghi has also said he has no plans to seek a loan from the European Stability Mechanism, a contentious subject which contributed to the downfall of former Prime Minister Guiseppe Conte.

After a second round of consultations with political parties, the incoming head of government has agreed a common approach for an administration which will concentrate on overhauling the Recovery Plan to unlock NextGenEU Covid funds and on improving the country's vaccine rollout. The man credited with saving the euro in 2012 will aim to take a leading role in reinvigorating the European Union's stalling drive for banking union, a transition team source said.

While Draghi would like to argue for a common European budget, a source noted that he still has to persuade the eurosceptic League party to back such a drive. Some coalition partners have also urged him to make a public call to loosen rules on public debt under the eurozone's Stability and Growth Pact.

Together with major reforms of Italy's justice system and public administration, Draghi also favours an overhaul of taxation. But, faced with differing priorities between his partners, with the centre-left Democrats wanting a more progressive system and the League arguing for a reduction in the number of taxes, he has only so far been able to agree on avoiding any increases. Another key policy question that remains unclear is whether a Draghi government will extend an emergency prohibition on layoffs currently due to expire in March.

PRODUCTIVITY BOOST

Central to Draghi's programme, and to its overhaul of the Covid Recovery Plan, will be boosting productivity and returning Italy to growth after two decades of stagnation. The reworked Recovery Plan, which will include "deep change, close to a re-writing", will set out how growth will be achieved, answering a criticism made by the European Commission of the original plan.

The incoming government will also have to address questions, which plagued Conte, over a lack of transparency in the administration of the Recovery Plan, possibly by creating a dedicated ministry or government department, sources said. The League is pressing for a bigger role for regional, provincial and local government in managing the spending, League parliamentarian Alberto Gusmeroli told MNI. This would speed project spending and feed through to higher national tax revenues, he said.

Draghi is set to announce the names of ministers in his government later this week, for parliamentary approval by early next week, but sources from the main political parties said he has so far resisted calls for senior politicians to be named to top jobs. It is also unclear whether the League will receive a ministry, despite good relations between Draghi and the party's number two, Giancarlo Giorgetti, due to the danger that this would cause tensions with the Democrats and Five Star, making the government unstable.

A source from business lobby Confindustria told MNI that they asked Draghi to keep incumbent Finance Minister Roberto Gualtieri, a Democrat, in government, even if he shifts to a different portfolio. Unconfirmed reports suggest Bank of Italy General Director Daniele Franco could become finance minister.

MNI Rome Bureau | +34-672-478-840 | santi.pinol.ext@marketnews.com