Italy before the election - Economy

The alpha animal of Italian politics was on velvet paws for eight weeks. "In this election campaign, everyone opens their mouths," said the right-wing top candidate's campaign helpers in August. "Only Giorgia has to be careful and weigh her words," they regretted. To the point of self-denial, Giorgia Meloni presented herself as a modern conservative, a responsible budget politician and a loyal European. Her hasty change of heart brought the favorite the accusation of pursuing elective cosmetics. "Meloni is trying to powder herself," said her opponent Enrico Letta, head of the social-democratic PD. The dashing founder of the Brothers of Italy, who is campaigning for votes with the fascist motto "God, Fatherland and Family", then called Letta a sexist.

Two weeks before the elections next Sunday, the 45-year-old Roman woman took off her self-imposed muzzle. Overnight, Meloni re-entered the scene without make-up: a right-wing nationalist populist who is alarming abroad, the economy and the financial markets.

Addressing the European partners, the campaigner said on Milan's Cathedral Square: "The fun is over for Europe now." In other words, we will bang our fists on the table in Brussels and insist on the implementation of Italian interests.

Shortly thereafter, the Italian Brothers' MEPs in the European Parliament in Strasbourg voted against condemning Hungary for the anti-democratic policies of autocrat Viktor Orban. After all, the prime minister "won the elections several times, even by a large margin," Meloni said in justification. She also sharply criticized the EU Commission's threat to withhold the payment of 7.5 billion euros in subsidies to her friend in Budapest. Meloni followed suit on Tuesday. A right-wing victory Italy would hopefully pave the way for the claim of her far-right partner party Vox in Spain, she told Spanish news agency EFE.

Italy cannot afford a break with Brussels. The indebted country is not only dependent on the 191 billion euros from the European reconstruction fund. The new protective shield of the European Central Bank is also of vital importance. The ECB can use the rescue instrument to counteract an "unjustified and uncontrolled" rise in interest rates for government bonds in an emergency. However, the euro state in need of help must meet various conditions, including the fulfillment of the obligations under the reconstruction program.

So is the demonstrative solidarity with the EU opponents in Hungary and Spain just an election campaign show? Tobias Mörschel, head of the Friedrich Ebert Foundation in Rome, is skeptical: "Meloni wants a different Europe, she said that to every camera for ten years." Your role model for the restructuring of the EU is Orban. Optimists counter that reality will leave the power-seeking lightning climber with no choice but to make up her true face. Claudio Cerasa even reverses Meloni's slogan. "If the right-wing nationalists win the elections in Italy, the fun would not be over for Europe, but for the populists," writes the editor-in-chief of the liberal daily Il Foglio. Not even the most irresponsible party can afford to campaign against Europe today. "The populists have to admit that, in the face of the harsh reality, their ideas of the past are part of the problem rather than a solution," Cerasa said.

This seat belt is tightened until December 31, 2026

Mario Draghi has been doing everything since his ouster on July 21 to ensure that Meloni and her allies of the Lega, Matteo Salvini, do not destroy his government's legacy. As early as May 2021, he had designed the apparatus for implementing the reconstruction plan in such a way that the changing whims of Roman politics could not jeopardize the implementation of the modernization program. This seat belt is tightened until December 31, 2026.

After the change of government, the right wing's expensive election promises are also subjected to the reality test. Meloni advocates rigorous budgetary discipline. At the same time, the head of the Italian brothers unashamedly advertises expensive pension programs. Her message: Retire whenever you want. If the check is too low, the taxpayers help out.

The financial markets are unperturbed by all of this. "So far, investors haven't batted an eyelid," writes Reuters columnist Hugo Dixon. The risk premium of Roman government bonds compared to federal savings bonds is at the same level as in July before Draghi's resignation, at 2.3 percentage points. At the American Citi Bank, too, one finds: "The surveys point to an overwhelming victory for the right-wing camp, but the markets seem to be relaxed about the political risk in Italy". So they could be right, at least for the coming months. "Many political promises by the right-wingers are likely to put Italy on a collision course with Brussels," predict the Citi analysts. The players on the financial markets are now excited to see which economic program the new government will launch. At Meloni they poke around in the dense fog. You don't know what she wants.

What is certain, however, is what the new government in Rome expects: a hell of a ride. Inauguration at the end of October at the earliest, presentation of the draft budget in November, the timely adoption of 433 implementing decrees for receiving further billions from the EU aid fund in December, an uncertain energy supply, exorbitant gas prices, rising interest rates and record inflation. While the Italian economy was still able to shine with growth of 3.4 percent in the first half of the year, at least the industry is slipping into recession. The industry association Confindustria expects industrial production to fall by 1.4 percent in the third quarter. In energy-intensive industries, unaffordable utility bills are forcing companies to shut down. The world's leading Italian tile manufacturers in Emilia Romagna are hit particularly hard. The traditional glass industry has closed on the Venetian lagoon island of Murano. "To a certain extent, de-industrialization is already underway," says Matteo Zoppas, Veneto-based manufacturer of electrical components. The consequences of the energy price explosion are unimaginable. Zoppas is the world market leader in heating systems for domestic applications, especially for the kitchen. His company can only survive thanks to its size. "A way must be found to save the Italian production system," Zoppas appealed to the future government.

But Draghi was able to raise 60 billion euros for relief packages without incurring new debt, so the additional tax revenues are now drying up in the downturn. The next government's fiscal space will also be constrained by the increase in interest payments and inflation-driven increases in government spending.

The Italian economy's struggle for survival does not deter Meloni. "Italy has inexhaustible resources and is able to face any challenge," she said on Wednesday. Such assurances sounded different from the mouth of Mario Draghi.

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