By Silvia Marchetti
ROME (MaceNews) – The right-wing coalition victory on Sunday will likely lead Italy to a super-accommodative, risky economic and fiscal stance as parties forming the alliance have all pledged tax cuts and more spending to support the economy.
With final results yet to be released, the far-right Brothers of Italy group won with 26% of votes, followed by the Democratic Party with 19% and the 5 Stars Movement with 16%, while the League collapsed to 8% alongside Silvio Berlusconi’s Forza Italia party.
The right-wing coalition, to be formed by Brothers of Italy, League and Forza Italia has an overall 45% majority, which will allow it to rule in a rather stable way both at the Senate and Lower house.
Having won the most votes, the Brothers of Italy party will be naming Italy’s next prime minister, expected to be their leader, Giorgia Meloni, the first woman in Italian history to become premier.
Voter turnout was the lowest in the past decades, down to barely 60%, showing that those who did not vote declined to support the Democrats.
A source within the right-wing coalition said the allies were ready to govern but faced several challenge.
“We need to rush and approve the next budget law by end of October and to clear a key pension reform, and justice reform,” said the official.
Given the pandemic suspension of the European Union’s tight fiscal rules is still in effect, Italy’s new government will be earmarking significant resources to support families to cope with rising inflation, added the source.
But spending plans should be prudent, argued another right-wing source, and take into account Italy’s soaring public debt and the fact that it will aim to pay down some EUR 430 billion in maturing securities in the next six months.
The victorious parties will have to strike a deal on where to focus spending measures, with the League pushing to breach all EU’s fiscal restrictions.
Time is of the essence. The new government won’t be in working mode before 40 days, with the risk of delivering a partial budget law and temporary revised growth forecasts just in time to forward these for approval to Brussels.
There’s also the crucial revision of the stability pact currently under scrutiny in Europe, with a round of talks kicking off in November, so the government must be fully formed by then in order to have a key role in negotiations, noted another right wing official.
Brothers of Italy is pushing the principle of ‘sovereign interests’ over the common European integration project, which is seen by markets as a dangerous anti-European stance.
The spread in yield between Italian and German bonds rose to 231 basis points on Monday morning following the vote, with analysts and investors concerned on how strong, and long-lasting will the right-wing alliance really turn out to be.
Differences among allies have surfaced during the electoral campaign and are bound to increase as economic priorities and measures are laid on the table. The League pushes for an extension of a 15% flat tax to higher incomes while Meloni’s group has promised general tax cuts for all citizens.
Italy’s growth for next year will be stuck at +1% and debt is expected to soar to 147%, allowing for little spending leeway, while borrowing costs will soar to over EUR 62 billion, according to recent forecasts by the outgoing cabinet.
It is unclear yet as well how relations with Brussels will be. All rightist parties have sent out mixed messages about their belonging to the European Union but at the same time they’re critical of binding treaties and fiscal constraints.
The rightists have also pledged to revise certain investments’ objectives of the recovery fund set up to tackle the impact of the pandemic, but negotiations with Brussels will not be easy.
The European Commission has in fact stated that the recovery plan can be slightly adjusted but no major overhaul will be accepted, or Italy might lose the chance of securing a great chunk of the EUR200 billion aid funded by the EU for strategic investments.
Sources from the rightist alliance argue that the recovery plan was designed to tackle the pandemic impact and did not take into account the worsening economic outlook triggered by the Russian invasion of Ukraine and soaring energy-costs and inflation.