–Analysts see negative fallout for financial markets
–Issuance of USD-denominated bonds set aside
By Silvia Marchetti
ROME (MaceNews) – Italian Premier Giorgia Meloni’s one-year anniversary of government rule has led to few results on the economy, say opposition forces, with more public debt piling up and the likely rejection of the key European Stability Mechanism reform aimed at boosting the EU’s financial sector.
“It’s a pathetic anniversary. (Meloni) cannot deliver what she has promised in terms of significant tax cuts, simply there are no resources and she keeps borrowing money on the market, weighing on debt sustainability. Italy’s future outlook remains very gloomy,” said a top Democrat official.
Market analysts are concerned that Meloni’s recent measures will further destabilize investors. The bank tax, which took lenders by surprise, topped with more deficit spending has already pushed Italian official lending rates up to 5 percent in October, almost two points higher than comparable German rates, stuck at 3 percent. Two years ago, the gap was just 1 percentage point.
Next year’s recently cleared budget plan worth EUR 24 billion has been funded through EUR 16 billion in extra deficit spending, lifting Italy’s debt to EUR 2.85 trillion, up EUR 28 billion since last month, noted the official. Higher borrowing costs are also weighing on public finances as rates keep rising.
A 5 Stars official said Meloni had issued numerous “useless” government decrees, many of which had then failed to be approved by parliament to become law.
“It has been a negative year: the rightist coalition has nothing to celebrate. Meloni’s saddest achievement was scrapping our citizenship wage which supported the jobless, and replacing it with some extra EUR 90 per month for a limited group of very low earners”, said the 5 Stars source.
Banking lobbies have criticized Meloni’s controversial decision to tax bank profits linked to higher interest rates, a move the PM decided to make after the European Central Bank raised rates. At the start, the cabinet aimed at a 40 percent tax but had to water it down when several key Italian lenders refused to pay it, capping it at 0.1 percent of assets.
The tax applies to the income that comes from the gap between the banks’ lending and deposit rates, with the goal to raise EUR 3 billion to fund measures for the poor and homeless.
But banking sources are confident that in the short term the cabinet will be forced to withdraw it as bank shares keep plummeting.
Opposition sources however stressed that the most worrying side of Meloni’s failures was the “blind” European stance on key financial issues and the lack of a global vision with regard to bond issuance programs.
Meloni is adamant in rejecting the ESM reform treaty aimed at introducing a common backstop across the eurozone in case of bank failures, and if Italy does not ratify it, argued a Democrat, the new treaty will never be implemented given all member states must approve it.
“Not having a common backstop will only increase the risk of financial spillover effects across the eurozone and increase the vulnerability of our banks, already exposed to high sovereign debt,” said the Democrat.
Also, Meloni’s hard stance on adoption of more flexible European fiscal rules is raising pressure on member states in a delicate moment.
A ruling coalition source warned that the revision of the Stability and Growth Pact, which in the absence of an agreement at EU level by the end of this year will return to tight pre-Covid budget rules, must take into account several factors.
“Italy asks to leave out of the deficit calculation (currently 3 percent of GDP) strategic investments and financial aid to Ukraine, the latter still under discussion at EU level. Without these two exemptions, talks will get tougher”, said the cabinet official.
The Democrat complained as well how efforts by previous centrist governments to diversify Italy’s investors base were being squandered by Meloni.
The issuance of more USD denominated bonds, which in the last couple of years proved successful, has been ditched, and “it is not only due to an unfavorable moment in the USD-EUR exchange rate. Meloni simply lacks the vision to understand how important the US market is for our debt sustainability”.
Meloni’s ambitious plan to privatize key national companies to raise cash has proven ineffective, with just the sale of national carrier ITA’s minority package to Lufthansa for EUR 325 million and vague plans to sell Italy’s top phone operator network.
Another Democrat source said Meloni’s proposed fiscal reform was still a work in progress. The reform aims to gradually reduce the tax rate bands down to three from the current five, and ultimately to just one.
Next year Meloni will also have to revisit her political position within the EU parliament to reassure markets on her weaker anti-European stance, noted another 5 Stars source.