MNI EXCLUSIVE: Next Italy Gov Must Stick To Fiscal Goals: Srce

--Hawkish Party Propaganda Will Give Way to "Credible" Choices

--ECB Interest Rate Hike To Impact Debt Only If Growth Stops

By Silvia Marchetti

     ROME (MNI) - Italy's next government cannot go off track from set fiscal

and growth paths, no matter which party or coalition forms a government, a

senior government official told MNI in exclusive comments. 

     "The current economic restraints and the fiscal path ahead is so narrow

that nobody, not even the 5 Star Movement, can deviate from the road so far

followed in balancing budget and growth objectives," said the official.

     He expressed confidence that "good sense" will prevail at the end of the

day from whichever party or parties form a future government.

     Party talks aimed at forming a governing majority are facing a prolonged

stalemate, after Elisabetta Casellati, the newly appointed Senate leader, failed

to strike a deal between the centre-right coalition and the 5 Star group.

--FRESH TALKS

     On Monday, President Sergio Mattarella handed an exploratory mandate to the

leader of the Lower House, Roberto Fico, a 5 Star deputy. If Fico's attempts

fall short as well, the chances of fresh elections grow. 

     "I am quite optimistic that both the centre-right Lega and 5 Star, if they

succeed in joining forces and put aside differences in order to govern, will

behave in a credible and reasonable way even if Lega continues to push its

anti-euro and extreme public spending rhetoric," argued the official. 

     "So far we've seen electoral agendas based on pre-vote populist propaganda,

but when the election winners sit down at the table to define a serious

governing program, the scenario will change. They might opt for different

measures depending on political reasons, but such measures would still be within

the budgetary path set forth by the outgoing government," he added.

     Growth has slowed slightly slowed modestly in the first quarter of 2018,

while less rosy recent deficit forecasts allow little room for expansive

economic manoeuvres.

     Lega will need to find adequate resources to fund its 15% flat tax rate,

while 5 Star might need to revisit their so-called citizenship wage to respect

fiscal targets. Both measures could be adopted, but need to be "fiscally

justified in some credible way," the source noted. 

--DEBT REDUCTION PARAMOUNT

     The public debt reduction path remains paramount. "Not even the outgoing

Democrat government believes debt can be cut overnight, but there's no other way

out. Debt must be curbed in a gradual, yet credible way. There are no shortcuts.

Privatisation of public assets and companies might give a little support, but

are not the solution," said the official. 

     Future interest rates hikes by the European Central Bank may not affect

debt sustainability directly and immediately (given an average 7 year maturity),

but only if growth continues, he warned. 

     "The real issue at stake is not raising rates and what the impact will be,

but how such rates dynamic will move in relation to the ups and downs of

economic performance. Thus the need to keep the growth curve upward". 

--INTERNATIONALIST OUTLOOK

     Maintaining existing international alliances is another key to economic

stability, said the official, arguing that all parties are aware that Italy

can't afford to weaken its membership of the Atlantic community after more than

70 years.

     With the clock ticking on finding key government allies, the 5 Star

Movement is in fact reviewing its initial hawkish positions. It quietly changed

its pre-election program last week, softening anti-NATO and pro-Russia stances

following a rise in global tensions. 

     Lega, despite its continued calls for stronger Italy-Russia ties, won't be

able to do much alone on this front having secured only 18% of votes. 

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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