Italy's Five Star, League report progress on potential coalition government

Negotiations on forming a coalition government between the far-right League and the anti-establishment Five Star Movement are going well and a deal could be wrapped up soon, the two parties said in a joint statement on Thursday.

"Significant steps forward have been made on the composition of the government and on the [nomination] of a prime minister," the statement said following a meeting between League leader Matteo Salvini and Five Star chief Luigi Di Maio.

"...the aim is to define everything in a short space of time to provide answers and a political government quickly to the nation," the statement added.

The talks, which kicked off on Wednesday, look set to end nine weeks of political deadlock.

They gave no indication of who might lead the administration or who could take charge of the key ministries. "I cannot disguise my joy and happiness that we can finally start solving Italy's problems," Di Maio said on Facebook.

The two sides had originally tried to come to an agreement soon after the March 4 election but stumbled on several topics, including the choice of a new prime minister.

The centre-left Democratic Party (PD), which recently held power but came a distant third in the election, expressed little interest in forming a government with Five Star, preferring to carve out a role as the opposition.

The political stalemate brought the prospect of yet another election, as soon as July, but in the past several days Five Star and the League rejoined in a last-ditch effort to prevent another vote.

PM, Berlusconi role have been obstacles

On Sunday, the 31-year-old Di Maio withdrew his previous insistence that he should be prime minister, saying instead that he and Salvini should pick a mutually acceptable figure.

Five Star has also wanted the League to abandon Forza Italia in any coalition. Forza is led by Silvio Berlusconi, the former prime minister who remains an influential figure despite both tax and sexual misconduct scandals.

Salvini had refused to do that without the approval of his veteran ally, but the former scandal-plagued prime minister seemed to signal his willingness to step aside on Wednesday.

"It certainly won't be us who imposes vetoes," Berlusconi said in a statement, adding that although he would not support this new coalition in parliament, his partnership with the League would still continue at a local level.

If such a coalition were to be formed, it would likely get a cool response from financial markets, as neither party has signalled fiscal restraint.

Both parties say they want to scrap a 2011 pension reform plan that proposed an incremental rise in the retirement age. Economists say repealing the law would cost 20 billion euros a year.

Five Star has also proposed of a universal basic income scheme, which could address a significant unemployment issue, particularly among the young. But economists say it could cost 30 billion euros a year.