Fnew governments approach the end of their first 100 days in as good shape as the right-wing coalition of Giorgia Meloni. Ahead of this January 31 milestone, Ms. Meloni held convivial meetings with Ursula von der Leyen and Pope Francis. These were seen in Italy as endorsements from the European Commission, led by Ms von der Leyen, and the Vatican, two organizations that Italian prime ministers must always keep by their side. Then, on January 16, another gift was given to a government boasting of a tough line on law and order: Sicilian police arrested Italy’s most wanted man, Matteo Messina Denaro, a mob boss who had evaded capture for 30 years.
Despite only having ten weeks to do so, the government has also managed to craft and push through parliament a budget for 2023. And it claims to have met payment terms in the weeks leading up to a third installment of grants and soft loans worth €19 billion. ($21 billion) of the EUfrom the post-pandemic recovery fund.
With all this, Mrs. Meloni’s party, the Brothers of Italy (FDI), has unsurprisingly gained popularity, rising from 26% in the September 25 legislative elections to almost 30% on average in the latest polls. Support for the main opposition party, the Democratic Party, fell over the same period from 19% to a dismal 16%.
However, it is perhaps what has not happened since the right took power that is most telling: the markets barely flinched at the advent of a government led by a party whose origins dates back to neo-fascism and was once staunchly Eurosceptic. The spread between Italian and German ten-year government bonds, a key indicator of concerns about Italy’s ability to service its debt, has narrowed. Since the new cabinet was sworn in, it has fallen from 2.33 percentage points to around 1.8 points.
This change reflects an appreciation of Mrs Meloni’s budget, which foresees a decrease in the deficit of 5.6% of the gdp 4.5% this year and 3.7% next. But it also reflects the perception that she has two good reasons for sticking to the cautious path. The first is Italy’s giant public debt. At the end of last year, gross debt stood at approximately 145% of GDP. A second reason stems from the post-pandemic recovery fund. Italy is expected to receive the largest share, nearly 200 billion euros. It is therefore in the interest of the government to avoid quarrels with Brussels or its EU partners until the payment of the last euro. The government first tried to block ships bringing rescued migrants to Italian ports. But when France pointed out that this decision contravened Italian treaty commitments, it backed down.
In other less publicized areas, however, the thinking and behavior of Ms Meloni’s government is clearly at odds with Italy’s European partners, as well as the Brussels commission. Take the scan. With the oldest population in Europe, Italy still ranks bottom (18th out of 27) on the EUDigital Economy and Society Index. But in the five years to 2022 it has shown the fastest improvement of any member state. In the previous government, under Mario Draghi, a former CEO of Vodafone, Vittorio Colao, headed a ministry for the digital transition endowed with broad powers to promote and integrate the use of digital in the Italian administration. Ms Meloni dispensed with her services and handed the task over to one of 17 departments in the Prime Minister’s Office, headed by a civil servant who, by her own admission, has a basic level of English.
A similar aversion to the future appeared in early drafts of the 2023 budget, which included a provision allowing merchants and others to decline card payments for less than €60. The proposal raised fears in Brussels that it could hamper efforts to combat tax evasion, and it was eventually withdrawn. But the final draft contained no less than 12 tax amnesties, as well as an increase from €2,000 to €5,000 in the legal limit on any cash transactions. These will slow Italy’s transition to a cashless society and make it easier for Italians to avoid taxes in the future.
So far, Ms. Meloni has sailed in relatively calm waters. But at least three dark clouds can be seen on the horizon. The first weighs on the stimulus fund. It remains to be demonstrated that the 55 deadlines and objectives set by the commission for the last installment have indeed been respected. And the payment by Italy of what it has already received is very late.
Ms Meloni’s boat could also be rocked by disunity within her coalition. When she took office, the fear was that her two partners would balk at her support for sanctions against Russia and arms deliveries to Ukraine. Matteo Salvini, the leader of the Northern League, was once a fan of Vladimir Putin. Silvio Berlusconi, who runs Forza Italia, still is. So far, neither has dared to challenge the government’s position.
But an arguably more controversial issue has emerged: constitutional reform. For the FDI and Forza, it means the introduction of a semi-presidential system. For the League, that means greater regional autonomy – a reform that critics say would widen the already troubling divide between the wealthier north and the poorer south.
And then there is the third and most frightening threat to government shipping: the ECBto raise interest rates while reducing its bond-buying program, a policy that Ms. Meloni and her ministers have repeatedly deplored. Italy’s gross public debt as a proportion of GDP fell from the peak of 155% reached during the pandemic. But it’s still enough to make Italy vulnerable to a sell-off in bond markets if investors fear political instability or further economic disruption. Ms Meloni has so far proven herself to be an expert skipper. But even the best can find themselves at the mercy of the weather. ■
