REPEAT: MNI: German Politicians Downplay Italy Debt Plan

Repeats Story Initially Transmitted at 06:30 GMT Apr 13/02:30 EST Apr 13

--Lega Eurozone Proposals for ECB Debt Relief Seen Unworkable

--SPD, FPD Open to Different Avenues to Debt Relief

By Chris Mc Innes

     LONDON (MNI) - If Italy's centre-right coalition get to govern, finance

ministers and central bankers across the euro area will be on high alert, with

politicians already telling MNI some of their economic plans are unworkable.

     Lega, the biggest party in the coalition following the March 4 election and

de facto group leaders, will see their plans coming under close scrutiny across

the Continent

     Their Eurozone proposals particularly would face stiff opposition in

Germany if they were translated into government policy, senior parliamentary

sources in Berlin told MNI. 

     In a recent interview with MNI, Lega's economic policy spokesman called on

the European Central Bank to write off all the sovereign debt it had acquired

through the asset purchase program as a way of dealing with some governments'

chronic debt overhang. This would include writing off over E400 billion in

Italian government debt alone.

     --SPD AND FDP: A NO FROM US

     Senior representatives for the SPD, Angela Merkel's junior coalition

partner in government, and the FDP, a prominent opposition party, pointed to the

legal impossibility of Lega's proposal. MNI understands that other parties share

this view.

     Lothar Binding, the SPD's finance spokesperson in the Bundestag,

highlighted that the ECB does not have the authority to carry out such a move.

"A debt write-off would also go against the no-bail-out clause enshrined in the

European treaties," he added.

     Bettina Stark-Watzinger, chairwoman of the Bundestag's Finance Committee

and member of the FDP leadership, said that "a debt write off by the ECB is not

possible. Moreover, the credibility of European policies would suffer."

     --DIFFERENT DEBT RELIEF PATHS

     However, both suggested ways in which a new Italian government could reduce

its outstanding debt, which currently stands at E2.3 trillion. According to

Binding, debt relief is available to program countries but would carry stringent

conditions.

     Stark-Watzinger repeated her party's proposal for a Euro area sovereign

debt restructuring mechanism, saying that "ways should be found to allow the new

Italian government to temporarily leave the euro if it decides its debt is no

longer sustainable."

     But there is little support for such a measure within German government

ranks. The coalition agreement, which serves as a detailed policy roadmap for

the government, makes no mention of this. Furthermore, it would run counter to

the more integrationist bent of the SPD and CDU.

     --ITALY TALKS DEADLOCKED

     The rhetoric from Rome has outlined a bleak worst-case scenario for

European leaders should Lega play a prominent role in Italy's next government.

Yet it remains to be seen how big an imprint Lega will have on government policy

and indeed if it will have one at all.

     Lega government participation is still far from guaranteed. Both Five Star

and Lega have warmed to each other since the election, but Lega is tied by a

deal to Silvia Berlusconi's Forza Italia, with whom Five Star has refused to

govern. It is unclear if Matteo Salvini, the Lega leader, will stick to the

coalition agreement or break the deal to form a government.

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