An electoral earthquake is predicted in Italy on 25th September. For the first time since 2008, a right-wing coalition is likely to win the general elections. Due to left-leaning parties competing separately and thanks to an electoral law that attributes one-third of the available seats through a first-past-the-post system, the right is on course for a landslide parliamentary majority. With the far-right nationalist party Fratelli d'Italia polling above 25% of national votes, its leader Giorgia Meloni is expected to become Italy's next Prime Minister.
Speculation is growing in Italy and elsewhere on the political consequences of this electoral outcome. But
in a country where real per capita GDP in 2019 was still below its 2000 level, it is also critical to explore the economic consequences of a future Meloni Government.
On its surface, the economic programme of the right-wing coalition appears as a collection of well-intentioned propositions, such as promoting a "sustainable energy transition" or spending public money more efficiently. When it comes to the specific policy proposals, it does not differ much from a typical liberal-conservative economic agenda.
The programme stresses reducing the tax burden on companies and households, while the most controversial fiscal reform centred on introducing a costly and regressive flat tax –the same tax rate on the compensation of employees regardless of its amount– has been scrapped. The programme also calls for reinforcing the system of subsidies granted to business enterprises, without specifying any public investment orientation on strategic sectors and technologies. On the contrary, support for tourism and the stereotypical promotion of Italian food and Made in Italy products are largely emphasised.
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It must be noted that Meloni has expressed and maintained a more "interventionist" stance in relation to strategic industrial dossiers, especially where foreign actors are involved. For instance, she opposes the privatisation of the former flag carrier (ITA Airways) in favour of Air France. She also wants to bring the national telecommunication network under public control, through the state-owned bank CDP.
Contrary to Salvini, when he was governing with the Five Star Movement in 2018, Meloni has always supported balancing the state budget, irrespective of the business cycle (she did not oppose the passing of the balanced "budget constitutional" amendment in 2012). Such pledge might be respected through a combination of cuts in social programmes (above all, the popular basic income policy Reddito di Cittadinanza) and a reduction in the already chronically low share of public sector workers (13% of total Italian employees, compared to 18% on average in the EU).
This fiscal conservativism squares well with a U-turn on European affairs. Meloni does not want 'Italexit' any longer. From her call to leave the monetary union in 2014, she moved towards accepting the euro and a "confederal approach" to European integration. The coalition programme endorses the "full adhesion to European integration" and invokes a generic revision of its economic governance (as most Italian parties do).
Under normal economic circumstances, a Meloni Government would most probably conduct economic policy in continuity with the past two decades (except for the two Conte Governments in the years 2018-2020). Melonomics would not upset the Italian economic establishment, as confirmed by Meloni's warm welcome at the Cernobbio Meeting, an annual gathering of the Italian business community. Incidentally, PM Mario Draghi has recently wished that the next Government had a Finance Minister as competent as Daniele Franco (the current Minister), hinting to a possible confirmation in his role. An option which would be met with satisfaction by the President of the Republic, the European institutions and the very influential technostructure of the Ministry of the Economy and Finance.
Nevertheless, whatever Meloni's intentions may be, in the short to medium term the looming energy crisis is set to dominate the economic agenda. 40% of Italy's energy consumption is dependent on gas, of which more than 45% was imported from Russia (whose dependency is far from being eradicated). Meloni has recently endorsed a European cap on the gas price. While this might lower the cost of energy, it could well diminish the already reduced quantity of available gas, leading to forced rationing and eventually to an unwanted diplomatic compromise with Russia, in exchange for maintaining a sufficient flux over winter.
With a forecasted 2023 recession, driven by unbearable production costs and purchasing-power eroding inflation, reducing taxation on higher earners and embracing fiscal discipline through cuts in social spending might not be feasible options. Italy will also need the ECB to continue its bond purchasing programme (more than 25% of Italy's public debt is now held by the Central Bank), which also keeps government's long-term borrowing costs at sustainable levels.
In Italy, more than in any other EU country, economic decisions are and will continue to be influenced by external factors and institutional constraints. Tough economic conditions could force a perspective Meloni Government to disown its liberal-conservative economic agenda in favour of a more interventionist and socially-minded one, which would go against its ideological genetics and vested interests.
Ultimately, the popularity of the next government rests on how it will confront the severity of the upcoming energy-induced economic crisis. Meloni's social conservativism and tough ideas on migration will not be able to obfuscate this looming economic iceberg. The growing electoral consensus that the right-wing coalition has accumulated in more than ten years while in opposition might vanish in a few months, if it does not swiftly address the material economic concerns of Italians citizens.
(Here, the Spanish version)
