Italy is facing profound change after the last parliamentary elections: The centre-right alliance of the right-wing populist parties Fratelli d’Italia (FdI) and Lega, as well as the centre-right party Forza Italia, won an absolute majority in both chambers of parliament. From economic policy to cooperation with the EU and the rule of law to the Russian war of aggression on Ukraine – the election victory raises many questions about the country’s future course.
Economy as the biggest challenge
Italy’s economy has many competitive advantages, being the second-largest net exporter of goods in the EU after Germany. However, Rome faces significant problems, including the North-South economic divide, the slow pace of growth, and the enormous public debt of about 150 per cent of gross domestic product (GDP). The labour market and the social situation also pose challenges. According to the latest Eurostat data, in 2021 more than 23 per cent of 15- to 29-year-olds in Italy were neither in education nor in employment or training – the highest figure in the EU.
The new government will have to function in an increasingly unfavourable economic climate. In the coming months, the economy will continue to weaken and the energy crisis will worsen. At the same time, inflation in the Eurozone remains at record levels and the European Central Bank is likely to raise interest rates further. This will increase the cost of government debt and weaken GDP growth. This macroeconomic environment leaves little room for populist economic policies or miscommunication with the financial markets, which will be watching the coalition’s signals very closely.
Cooperation in the EU
An important question in this context is how the new government will cooperate with Brussels. In addition to topics such as migration and the green transition, fiscal policy in the Eurozone is likely to cause considerable controversy. Italy should submit its draft budget for the coming year to the EU Commission by mid-October. A resumption of talks on EU fiscal rules is planned for October as well. According to forecasts, it is rather unlikely that Italy will achieve a budget deficit of 3 per cent before 2025. Therefore, Brussels and Berlin should temper their expectations here.
Another point of contention with the EU Commission is likely to be the announced revision of the Italian recovery and resilience plan by the centre-right coalition. However, the need for European money from the Next Generation EU fund, from which Italy benefits the most, as well as the risk of a negative reaction from the financial markets should tend to deter the government from taking a confrontational course. Despite assurances of cooperation with the EU, however, there is a risk that the inability to address the country’s economic challenges and the rivalry between Lega leader Matteo Salvini and FdI leader Meloni could lead to a more confrontational course towards Brussels.
Respect for the rule of law
Given the populist character of all three parties in the coalition and the fascist roots of the party of the new prime minister, the question arises as to the attitude of the new parliamentary majority to the rule of law. The scenario of “Orbanisation”, that is, the assumption of complete control over state institutions as in Hungary, is rather unlikely. The centre-right coalition has not achieved the two-thirds majority in parliament required for a constitutional amendment. Moreover, President Sergio Mattarella will continue to uphold the constitutional order. However, the new government can hardly be expected to take measures to strengthen state institutions. In addition to the announced plans to reinforce the executive through constitutional reforms that have not yet been named, the management of the state’s economic resources by the three populist parties could increase the level of political corruption in Italy.
Position towards Russia
Former Prime Minister Mario Draghi has been one of the most committed European politicians in supporting Kiev in the Russian war of aggression from the beginning. According to the latest edition of Eurobarometer from September of this year, support for economic sanctions against Russia is greater in Italy than in France. But how does the new government position itself vis-à-vis Russia? On the one hand, both Salvini and Meloni have distanced themselves from Russia since the beginning of the war. On the other hand, it is precisely these parties that have taken strongly pro-Russian positions in the past. In the case of Lega, there were even accusations of illegal financing from Moscow. Forza Italia leader Silvio Berlusconi, who has maintained very close ties with the Russian president’s inner circle for some time, made a statement shortly before the elections in which he de facto denied Ukraine the right to an independent government. Even if it is hard to imagine the new government openly torpedoing support for Ukraine or the economic sanctions against Russia, it must show that it is serious about European solidarity on this point.
Italy will be a difficult and complicated cooperation partner for Germany and the EU. However, it is in the interest of Berlin and Brussels to involve and keep Rome in dialogue with European partners as much as possible. Whether it is fiscal policy, the rule of law, or defence, it is difficult to imagine progress in these areas without cooperation with the third-largest economy in the EU and the Eurozone.
