Euro hampered by Italian political risk; Asian shares ease

Movement leader Luigi Di Maio speaks following a talk with Italian President Sergio Mattarella at the Quirinal Palace in Rome

Euro hampered by Italian political risk; Asian shares ease

"It's right to resonate with markets because it tells you about the sense of the wisdom between these negotiating parties", said Chris Scicluna, head of economic research at Daiwa Capital Markets.

With tensions high, Valdis Dombrovskis, the vice-president of the European Commission, warned that Italy should maintain its commitment to gradually reduce the public deficit and debt.

At the start of May, Mr Salvini and Five Star Movement leader Luigi Di Maio announced that talks between the two Eurosceptic parties have been successful. The policy program will probably be published on Thursday, 5-Star said.

Negotiations to form a new government have heated up in recent days after an inconclusive March 4 general election.

The head of state has made it clear that he will only look at the definitive version of the text, after a draft leaked earlier this week caused consternation with proposals that would allow Italy to leave the euro, demand financial concessions from the European Union and withdraw sanctions on Russian Federation.

The leaked documents, as well as Salvini's own public statements, make clear that the emerging Italian government is on course for a major standoff with Brussels if the incoming government pushes hard for a to renegotiation of Italy's contribution to the European Union budget as well as the fiscal compact.

"There will be utmost dialogue with Europe, but we will not be subordinate to Eurocrats", he said.

As the likelihood of a populist government in Italy increases, the yield on Italian government bonds - a measure of investor confidence in the country - has climbed.

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Some analysts played down the importance of Italian politics for the euro on Wednesday.

The League's support largely is centered in northern Italy, where it backs lower taxes and reining in central government spending, a popular platform in Italy's most productive region.

The euro was 0.05 percent higher at $1.1813 after sliding overnight to $1.1763, its lowest since December 18.

Italy's benchmark stock index - the FTSE MIB Index fell 2.2%, while the 10-year Italy government bond yield soared 12 basis points to 2.075%.

They had argued that their proposal to hold a referendum on whether to leave the eurozone was a thing of the past, even as the party's founder, the comedian Beppe Grillo, floated the idea again this month. Di Maio has pledged to guarantee a minimum income to the unemployed.

This would be the first time the 5-Star Movement has had a government role higher than the municipal level. Both leaders are young: Mr. Di Maio is 31, and Mr. Salvini is 45.

The League has been only a junior partner in governments led by billionaire tycoon Silvio Berlusconi, whose hopes to play kingmaker were dashed when his center-right Forza Italia party finished behind the League in March.

Berlusconi has refused to govern with the 5-Stars, who he regards as "more risky than communists". Di Maio has said that he and Salvini are "ready to remain outside" the leadership if necessary, adding that Italy's next prime minister would be "a political nominee who will be selected by both forces".

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