As if Europe didn’t already have enough on its plate with the conflict in Ukraine, high inflation, and an energy crisis, Giorgia Meloni, Italy’s far-right leader, whose Brothers of Italy party has fascist origins, is set to become the country’s first female premier.
Brothers of Italy received less than 4% of the vote four years ago, but this time they gained by remaining out of the national unity government that fell in July. Meloni’s right-wing coalition includes far-right League leader Matteo Salvini and Vladimir Putin pal Silvio Berlusconi’s centre-right Forza Italia. They will control both the Senate and the Chamber of Deputies.
Italy is in the middle of a serious economic crisis, so why did ordinary Italians vote for a far-right party? To answer this question, it is necessary to have some familiarity with the present-day political system in Italy. Mario Draghi quit in July after failing to get support for a stimulus plan to slow inflation. Meloni, on the other hand, shouted economic promises to an audience that nodded and cheered. She pledged to bring about positive change in Italy by capitalizing on the country’s assets, advocating for Italian interests in Brussels, enforcing stricter controls on immigration, safeguarding families and the poor, and requiring able-bodied Italians to work.
While campaigning, Meloni pledged to implement a number of economic measures. For example, Cerved, an economic think tank located in Milan, estimates that 24.5% of Terni’s 16,000 businesses are in danger of bankruptcy within the next year. This is the second highest rate in Italy.
Italy’s economy is being suffocated by high inflation, an impending recession, and sky-high energy costs. In addition, the effects of energy prices on the economy won’t be noticed until later in the fall, which might lead to massive social unrest. Meloni has said that she would work to sever the connection between local gas and power costs and will press for Europe to put a ceiling on gas imported from Russia, something that Draghi had been attempting to achieve for months.
Moreover, with debt at a staggering 150% of GDP, Italy is the most indebted European country, which has hampered the investment sector. Many of Meloni’s campaign pledges would entail taking on even more debt, but Meloni has pledged that she will institute a regressive flat tax which she claims will help balance the budget.
Meloni’s first task will be to find billions of euros to fund her election promises. These promises include lowering energy costs, cutting taxes, and preventing an increase in the retirement age that is scheduled to go into effect in January. Draghi has already allocated €66 billion for tax reductions and subsidies that would assist energy-intensive businesses and low-income people. These are set to expire in November, and the cost to prolong them for one more month would be €4.7 billion. Meloni’s position is strengthened by the fact that higher energy costs result in increased government income from excise charges and value-added tax; hence, it is likely that she will be able to find the money without having to raise state borrowing. However, given the rapid deterioration of the economic situation in the eurozone, it is quite conceivable that she will be forced to adopt similar measures in 2023.
Meloni will also have to address taxes and pensions. Existing tax cuts for employees that were set to expire this year are going to be extended until 2023 under a new proposal, which will come at an extra cost of €3.5 billion. In addition, Meloni must address the issue of pensions as quickly as possible. In December, a temporary rule that allows individuals to draw a state pension at the age of 64 will expire. After that, the age will climb to 67 as part of an unpopular change that was enacted in 2011, which Salvini wants to have annulled. Putting a stop to the increase in the retirement age would add more money to a public pension cost that is already the second largest in the eurozone, behind only Greece.
Another challenge is the creation of a draft budget. Meloni has committed to getting the public finances under control and assisting Italians in weathering the current crisis. It is going to be more difficult for Meloni to continue her balancing act without extending the country’s deficit, which is a move that may be unfavourable to markets since GDP is slowing down and interest rates are going up. Salvini is pushing for a public subsidy in the amount of €30 billion to control the cost of energy for companies in the lead-up to the winter season.
Meloni is attempting to calm fears that she will be the eurozone’s undoing. However, her ambitions for the Italian economy continue to be in direct opposition to the economic orthodoxy that prevails in Brussels.
It is quite obvious that Italy is now facing an economic depression. On the other hand, the recent election, which saw a significant number of unexpected results, is more evidence that Italians desire change. Contrarily, the newly elected administration shows the power of nationalism and seeks a shift in Italian culture. The new government, however, has a sobering task in light of the present economic situation in Europe. In light of this, it is still not clear if Meloni will put her words into action or not.
– S. M. Saifee Islam is a Research Associate at the KRF Center for Bangladesh and Global Affairs (CBGA), Dhaka, Bangladesh.
Published in International Policy Digest [Link]