Italy 'very important' to European Union, says Juncker

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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. Economists worry that such goals are unrealistic given that Italy is deeply in debt ― making up 132 percent of its GDP.

"If we're good enough to find the solution, we'll get started (with a government) without problems, but we don't want to take the president and the Italians for a ride", Salvini said, citing the differences still remaining. But with the two parties having little in common, beyond a distrust of traditional politics, the discussions have been challenging.

Italy's 10-year bond yield jumped almost 19 basis points to 2.13 percent, its highest level since early March. In it, the parties said they planned to ask the European Central Bank to forgive 250 billion euros ($296 billion) of Italian debt purchased under the euro zone central bank's quantitative easing (QE) program.

In a direct challenge to European Union fiscal rules, the draft accord also called for the bloc to create fiscal headroom for spending by adjusting the formula used to calculate Italy's debt burden, which the rules say must be reduced.

"It is totally nuts".

U.S. President Donald Trump said that China and other countries had become "very spoiled" on trade, as U.S. and Chinese officials hold high-level talks in Washington on trade ties.

Officials from the two parties said they had completed work on drafting a joint policy program, leaving it to Salvini and 5-Star leader Luigi Di Maio to sign off on the document.

The League has promised to introduce a flat tax rate of 15%, which would tax revenues by some 80 billion euros (RM376 billion) per year, while 5-Star has pledged new welfare payments for the poor costed at around 17 billion euros (RM80 billion).

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A plan to scrap an unpopular pension reform would cost 15 billion euros and another 12.5 billion would be needed to head off an automatic hike in sales tax due for next year. Italian shares slid, and the euro was weaker.

USA and European shares gained modestly, with MSCI's gauge of stocks across the globe .MIWD00000PUS edging up 0.18 percent.

But that relaxed attitude could change if a populist government in Rome were to start a serious attempt to implement its vision for a return to the pre-Maastricht days. However, they gave no hint over which party would lead the alliance.

Nicola Nobile, economist at Oxford Economics, said the coalition's policies might produce a short-term bounce in growth to 3 percent in 2019 and 2 percent in 2020, versus a baseline of around 1 percent for both years.

The news also pushed Italy's debt insurance costs in the five-year credit default swaps (CDS) market to 102 bps, the highest since end-March, according to IHS Markit.

Benchmark 10-year notes US10YT=RR last fell 6/32 in price to yield 3.1001 percent, from 3.08 percent late on Tuesday.

So far, ambitious plans from French President Emmanuel Macron have met with a cool reception in Berlin.

Italy's populist leaders sealed a coalition agreement, marking a radical rupture with an establishment that has overseen decades of stagnation in the euro area's third-largest economy. If formed, the government will then look to battle the European Union establishment.

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