May 14, 2019 / 5:05 PM / 2 months ago

UPDATE 1-Italy's Di Maio raps Salvini over "irresponsible" debt remarks

(Combines stories, adds Di Maio comments, background)

By Angelo Amante and Riccardo Bastianello

ROME, May 14 (Reuters) - Luigi Di Maio on Tuesday criticised a suggestion by his coalition partner Matteo Salvini that Italy could break European Union fiscal rules and increase its public debt in order to spur job creation.

Salvini and Di Maio, both deputy prime ministers, are competing for votes ahead of European Parliament elections on May 26 and spar daily on issues ranging from immigration to corruption.

Di Maio, leader of the anti-establishment 5-Star Movement, told reporters in the central city of Perugia it was “pretty irresponsible” to create market tensions by speaking about increasing the high debt level.

He said before “shooting off” about raising the public debt, the coalition should focus on cutting spending and cracking down on tax evasion.

On Tuesday Salvini, leader of the right-wing League, said the government should be ready to break the EU’s deficit ceiling of 3% of gross domestic product and push the debt to 140% of GDP if necessary, to lower unemployment.

“Until we arrive at 5% unemployment, we will spend everything that we should and if someone in Brussels complains, that won’t be our concern,” he told reporters in Verona.

Italy’s 10-year bond yield hit a two-month high of 2.755% after Salvini’s comments, while the closely watched spread between Italian and German yields hit its widest level in three months at 282.6 basis points.

At 132 percent of GDP, Italy’s debt is proportionally the second-highest in the euro zone after Greece’s.

Support for the League has surged since the government was formed in June 2018 and opinion polls suggest it has easily overtaken 5-Star as Italy’s most popular party. However, the League has fallen back in recent surveys, which show the gap narrowing somewhat between the two parties.

Di Maio is now trying to present 5-Star as a more moderate political force, offsetting Salvini’s hard-right positions on immigration and law-and-order and taking a less confrontational stance with the EU on public finances.

Yet only last week Di Maio said Italy could consider breaking the 3% deficit ceiling and also called for an EU rule change to allow public spending on education and health to be stripped from deficit calculations. (writing by Gavin Jones; Editing by Janet Lawrence)

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