By Giuseppe Fonte and Gavin Jones
ROME (Reuters) - Matteo Salvini has recently dropped threats to take Italy out of the euro zone but the hard-right leader is now alarming European authorities with a new target for his eurosceptic anger: a planned reform of the region's bailout fund.
Euro zone finance ministers agreed the draft reform of the fund, known as the European Stability Mechanism (ESM), in June and its leaders are due to finalise it next month.
However the changes have triggered a political storm in Italy, stoked by Salvini's opposition League party. The government is under pressure to delay or try to modify the reform treaty, and concern is growing among Italy's partners.
European Economics Commissioner Pierre Moscovici came to Rome on Friday and discussed the issue with Prime Minister Giuseppe Conte, telling reporters the reform was good for Europe and for Italy.
The Bank of Italy and some prominent economists have expressed concerns over ESM reform proposals making it easier to restructure sovereign bonds in a financial crisis. This could potentially hurt market confidence in Rome's debt, they say.
Salvini uses stronger tones.
"Approving the ESM changes would mean ruin for millions of Italians and the end of our national sovereignty," he said last week. He accuses the government of "betrayal" by trying to sign off on measures against national interest without parliament's consent.
Salvini, a 46-year-old populist whose plain-talking, anti-migrant message resonates with millions of Italians, looks on course to be the next premier, possibly as soon as next year if the current government's weakness produces early elections.
Behind his fury over the ESM is a shrewd political move to hold together a growing party that is an increasingly broad church, a League insider told Reuters.
The League has risen to become by far Italy's most popular political force, with the support of some 33% of voters, polls show. These include ardent nationalists who want Italy out of the euro and more moderate conservatives opposed to upheaval.
The first group is led by the League's economics spokesman Claudio Borghi and Alberto Bagnai, an anti-euro economist who heads the Senate finance committee. The second is embodied by Salvini's pragmatic right-hand man Giancarlo Giorgetti and Luca Zaia, the party's head for the wealthy northern Veneto region.
Salvini must perform a constant balancing act between the two constituencies.
"NO EURO" NO LONGER
Many League nationalists were dismayed by Salvini's abandonment of his anti-euro position over the last year, intended to try to calm investors' concerns about the prospect of the party ever leading an Italian government.
The fiery campaign against the ESM re-galvanises the eurosceptics and does not upset the moderates nearly as much as the prospect of a so-called "Italexit".
"Salvini has made #No ESM our new flagship to take the place of the anti-euro campaign," said a prominent League lawmaker, referring to a popular Italian Twitter hashtag in recent weeks.
ADVERTISEMENT"It keeps on board those who identify with Borghi and Bagnai without upsetting markets too much," said the source who asked not to be named.
Borghi and Bagnai attacked the ESM reform for months, but without public backing from their leader they got little attention. Now Salvini is making up for lost time, just weeks before the reform is due to be approved.
In almost daily tirades last week, he denounced it as "an attack on democracy and Italians' savings," and vowed to "oppose it in every place and in every way."
That is exactly the kind of language he used to use about the euro.
Critics accuse Salvini of hypocrisy because he was in power while the ESM reform was being negotiated but never spoke out against it. The League quit the ruling coalition in August.
ADVERTISEMENTBorghi told Reuters that Salvini considered the ESM issue to be too technical to engage with voters on it before, but had decided that now the timing was right.
"Of course I could never have said what I said about it without Salvini's full consent," he said.
Roberto D'Alimonte, political science professor at Rome's Luiss University, described Salvini as an opportunist for whom the anti-ESM campaign, like the anti-euro one before it, is a "political game."
"Salvini is politically smart and he stays in the middle, using Giorgetti and Borghi to appeal to different segments of the electorate," D'Alimonte said.
"He can keep everyone together until he manages to become prime minister. Then he will have to make decisions and that will the real test."
ADVERTISEMENT(Reporting by Giuseppe Fonte and Gavin Jones; Editing by Andrew Cawthorne)
