Italy’s rightwing politicians kept a close eye on Liz Truss during her rise and fall. Not for the first time, Westminster has provided a guide for leaders in every European capital, and no more so than in Rome, about how not to make policy.
It wasn’t long after the 2016 Brexit vote that the Italy’s dominant populist forces – the League, the Five Star Movement and the Brothers of Italy – quietly ditched longstanding demands for their own referendum on EU membership.
This week, after a spectacular general election victory, a coalition spearheaded by Giorgia Meloni, leader of the Brothers of Italy, will become a fully fledged government and within hours begin a hasty retreat from promises for costly tax cuts and deregulation that echo Kwasi Kwarteng’s calamitous mini-budget.
Meloni, as the head of Italy’s most rightwing coalition since the days of Mussolini and the likely next prime minister, has formed an administration after almost a month of talks with her coalition partners.
“They won’t make the same mistakes as Kwarteng and Liz Truss,” says economist Lorenzo Cordogno.
Meloni is expected to go ahead with measures to protect Italians from rising energy prices. But Cordogno, a former chief economist at Italy’s finance ministry in Rome, says the multibillion-euro cost of the energy price cap will be the limit of her ambitions this year: any plans for tax cuts will be delayed until 2023. “The coalition has won both houses of parliament and can take its time,” he says. Agnese Ortolani at the Economist Intelligence Unit says the reaction to Kwarteng’s mini-budget and Truss’s downfall will serve as a warning for Meloni, “which she is likely to heed”.
Like Truss, Meloni has attacked many of the institutions she will now need to work with in high office. At a gathering of Europe’s far right in February 2020, she railed against the “Brussels techno-bureaucrats” who she said wanted to impose a “Soviet plan to destroy national and religious identities”.
That all changed during the election campaign, when she said her party would comply with all EU rules and regulations, adding that it would be absurd to jeopardise £166bn of EU funds allocated for vital infrastructure improvements.
There are still radical proposals on the table to reduce the tax rate to 15% on annual incomes of up to €100,000 (£87,480) for the self-employed and to simplify four rates of income tax to a single flat rate by 2027. This was costed at €9bn and was scheduled to be paid for by a similar-sized cut in the “citizens’ wage” poverty relief scheme next year, coupled with a tax amnesty.
Meloni has argued tax cuts could be offset by reduced welfare subsidies. Not any more. The energy bailout package will soak up any cash she has to spend, coming as it does on top of the one implemented earlier in the year by Mario Draghi, the previous prime minister and former European Central Bank chief.
Draghi’s success at convincing financial markets that Rome could provide a stable platform for private sector investment has also been heeded by Meloni. But one stumbling block to piecing together a cabinet has been her demand that several ministries be run by experts in the Draghi mould, rather than by senior figures in her partner parties who have no experience of government.
There are helpful economic trends that the far-right leader will no doubt claim as her own. Exports have soared in the past year as Italy’s many international consumer brands increased foreign sales.
According to the Kiel Institute, a leading German thinktank, only Italy and Japan among the G7 have capitalised on a 6% surge in world trade since 2019, with Rome having enjoyed a 4% lift as of August 2022. Kiel’s trade indicator shows Germany is exporting around 7% fewer goods than in 2019. The drop is similar for France (-8%) and the UK (-6%).
The country’s eye-watering borrowing has shrunk as a proportion of GDP, making it more affordable. A drop from 164% of GDP to about 150% may not seem like a great victory, but in the land of ever-rising debts dating back 30 years, it comes as a welcome relief to see the ratio falling.
Marcello Messori, a senior economist at Luiss University in Rome, says Meloni will also inherit a state bureaucracy in better shape after several years of reforms. However, many old problems remain, says the former EU commission adviser and president of Italian railways, including a tax system that deters small firms from scaling up and employing more people. Italy’s population, one of the fastest-ageing in the world, also acts as a barrier to further reforms of the state, which at all levels of government is dominated by an older generation keen to protect the status quo.
One of the oldest is 86-year-old Forza Italia party boss Silvio Berlusconi, who had jeopardised Meloni’s efforts to form a government after revelations of his persistent sympathy for Vladimir Putin despite the illegal invasion of Ukraine.
Unhappy at her preference for experts in some ministerial posts, he could yet wreck the project.
Meloni had said she would call time on talks if her partners failed to back her support for Ukraine and a slower pace of reform. It may be that she succeeds where Truss failed.
