Italian Prime Minister Shakes Things Up at Home
Italian Prime Minister Giorgia Meloni, who was elected in October, is making waves in her home country after gaining support from more moderate politicians in Brussels. Despite concerns about her far-right party affiliations, Meloni has largely aligned herself with mainstream political positions both domestically and internationally. She has maintained a positive relationship with the European Union and has shown support for Ukraine in the face of Russian aggression.
However, her recent announcement of a 40% windfall tax on banks caught traders off guard, causing Europe’s main banking index to drop 2.7% on August 8. The measure was later toned down within 24 hours. Additionally, the government’s plan to curb airline prices for certain destinations has faced resistance from airlines and is being assessed by the European Commission.
The Government’s Economic Policy
Despite concerns about the government’s economic policies, experts believe that Meloni and her finance minister are trying to spend without running up significant deficits. They have made efforts to gradually adjust fiscal policy in line with EU recommendations, keeping the deficit and debt on a declining path. Italy’s government debt-to-GDP ratio is expected to decrease from 144.4% in 2022 to 138.8% in 2024, while the economy is projected to grow at a rate of 1.1% this year and 0.9% in 2024.
What to Watch Out For
Analysts suggest keeping a close eye on two events that may impact international investors. First, the upcoming budget is expected to create volatility and controversy, although the basic policy is not likely to change. Second, delays in receiving EU funds could affect public investment and economic growth. Italy is the largest beneficiary of the 750 billion euro program, but disbursements are contingent on certain measures and reforms. Delays and administrative issues may hinder the government’s ability to meet investment targets.
