Italian economist: Markets will judge Italy's spending plans

Italy's premier-designate Carlo Cottarelli, 2nd from right, arrives to address the media at the Quirinale presidential palace in Rome, Thursday, May 31, 2018. Cottarelli, a former IMF official tapped to lead Italy's government until a new election could be held has stepped aside, paving the way for a political government of populists. (Francesco Ammendola/Italian Presidency via AP)
FILE - In this Thursday, May 24, 2018 file photo, then Premier-designate Giuseppe Conte addresses the media after a round of consultations to form the Cabinet ministers, in Rome. Italy will be represented at this week's summit of the world's wealthiest democracies by a political novice whose powers in the new populist government remain to be tested: At best, as an executor of a program he didn't help draft, at worst, as a mediator between two disparate political blocs joined in a marriage of convenience. (Ettore Ferrari/ANSA via AP, File )
Italy's premier-designate Carlo Cottarelli addresses the media at the Quirinale presidential palace in Rome, Thursday, May 31, 2018. Cottarelli, a former IMF official tapped to lead Italy's government until a new election could be held has stepped aside, paving the way for a political government of populists. (Fabio Frustaci/ANSA via AP)

ROME — The economist who tried to form an Italian government amid political gridlock said Friday he's "truly worried" that the costly measures on the new populist leaders' agenda will further swell Italy's national debt and trigger a negative reaction by the financial markets.

Carlo Cottarelli told reporters in Rome that a policy of increasing the public debt, as proposed by new Premier Giuseppe Conte, is "something that will leave Italy exposed to speculation" by the markets.

Conte's week-old government, forged between the right-wing League party and the euroskeptic 5-Star Movement, is insisting that, if necessary, it will press the European Union to loosen regulations so that escalated spending won't by stymied by EU rules.

Italy is one of the 19 nations using the shared euro currency.

Luigi Di Maio, the leader of the 5-Stars, has promised to give those who are jobless or have low incomes or pensions a guaranteed monthly minimum income of 780 euros ($918). League leader Matteo Salvini wants to drastically lower tax rates by enacting a flat-tax system. Both want to undo pension reforms that have raised Italy's retirement age.

But the leaders haven't said where they'd get the funds to pay for all these measures.

Cottarelli said there were already signs that markets were skeptical about Conte's ability to keep Italy's public spending under control.

He noted that on Thursday, Greek short-term bonds were offering a lower yield than Italy's, an indication investors thought Italy's bonds were riskier than those of Greece, an EU country trying to emerge from years of a devastating financial crisis.

The Conte government's problem "isn't EU regulations" limiting Italy's maneuvering room, Cottarelli told the reporters.

"The problem is the reaction of the markets," he said.

An expert in trimming public spending and a former International Monetary Fund official, Cottarelli added: "Europe has been accommodating enough. It's the markets that aren't accommodating" to runaway government spending.

Last month, after weeks of political impasse following March's inconclusive national election, President Sergio Mattarella asked Cottarelli to quickly assemble a "technical" government with a non-political Cabinet to guide Italy until it held an early election. But the specter of a looming new election spooked the financial markets and Cottarelli stepped aside.

A short-term technical government "wouldn't have been able to fight off speculative attacks," he said, adding that Italy's next election "would have revolved around the euro" and whether it might leave the single-currency group.

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