Challenges for the italian government

photo_camera PHOTO / ARCHIVE - Giorgia Meloni, President of Italy
The Meloni Government faces this autumn not only the beginning of its second year of life (let's remember that it has been “in carica” since last October 22nd), but it is now when it will have to face the first real difficulties. It must be borne in mind, in this regard, that this Executive was the one that succeeded the successful Draghi Government (February 2021-October 2022), which achieved a “record” growth rate throughout 2021 (no more and no less than 6.3%) and that, in addition, it marked the roadmap to the government that succeeded it, and that was substantiated in the so-called PNRR that, approved by the Community authorities, pointed the way forward not only for a complete recovery from the devastating effects of the “coronavirus ”, but also the objectives to be met so that the country was charging, by tranches, the 209,000 million euros received in the ”Recovery Fund“ or ”European Reconstruction Fund" of July 2020.
Thus, the young Roman politician faced the beginning of her term with a very large parliamentary majority (almost 120 senators out of 200 in the upper chamber) and with some General State Budgets (PGE) that, in addition to being carried out by the previous Minister of Economy and Finance (Daniele Franco), were expansive in public spending, making its processing easy and there was hardly any response to it.
From there, the problems have been coming one after another and the first consequence of this is already known: a negative growth or decrease in the second quarter of the year (-0.3%) in a stage that is normally of growth. With what the country is again on the verge of the so-called “technical” recession, which is nothing more than to chain two consecutive quarters in negative: it will be in a month and a half when we will know if we are facing this recession or not.
To this must be added a war between Ukraine and the Russian Federation that, started on February 24, 2022, seems to have no end: since the withdrawal of the Russians to the remote area of the Donbass, no substantial progress has been seen by either side. And the dependence on Russian energy, although decreasing, continues to hit the economies of the European Union, to which is added a problem that comes from before: the increase in the cost of raw materials, which also contributes to higher prices.
In any case, what is increasingly worrying is the constant increase in the cost of living, neither the president of the US Federal Reserve (Jerome Powell) nor the president of the European Central Bank (Christine Lagarde) hitting the “key”: no matter how much interest rates rise (in the case of the European single currency, about to reach 4.50%), inflation, and in particular the underlying one, is still at “record” figures.
As is well known, the current Italian executive, which is neither center-right (due to the weakness of Forza Italia, the only formation really in that part of the parliamentary arc) nor far-right or post-fascist (no matter how hard some people try, forgetting that the post-fascists, represented by the Italian Social Movement (MSI), disappeared from the Transalpine Parliament between 1992 and 1994), has to move in a community world where its weakness is much greater than at the national level. Because the main party of the current government coalition, which is Meloni's, belongs to a Eurosceptic ”family“ (”Reformists and Conservatives“) that, for years had real strength (especially while the British ”Tories“ were inside it), but which is now a smaller group in relation to popular, socialists, liberals and even ”greens". All this is evident in the way Meloni is ignored by the main countries of the European Union, with Germany and France having already made the “void” on more than one occasion.
In this sense, the main reason for the conflict is that the Stability and Growth Pact is being reactivated again, with its famous rules of 60% debt over Gross Domestic Product and its 3% deficit in each fiscal year. It seems clear that there will be no return to the years of harsh austerity in public spending, but that the expansionary budgets in public spending have also ended. Fortunately for the Meloni Government, the central and northern countries of the Union, known for their orthodoxy in the aforementioned public spending, cannot demand more from the account either, since the "German locomotive”, as a result of competitiveness problems in its industry, is currently at low growth rates. And these countries, without Germany full of strength, tend in such situations to reduce their level of demand.
This does not hide the already known reality: the very large public debt, which, with the update of the data (remember that the rise in the cost of living lowers the national debt because the State collects more in taxes), stood at 143.5%. Which means that, at this moment, every Italian (in a country, by the way, plunged into the middle of the “demographic winter”), is not born “with a loaf of bread under his arm”, but must assume a debt created by previous generations that amounts to nothing more and nothing less than 47,405 euros, compared to the 30,690 of a German or the 31,900 of a Spaniard. Only neighboring France suffers a similar reality (44,270), with the difference that the French economy is 40% larger than the Italian one, despite having only ten million more inhabitants.
In a few weeks we will know, first, the Economic and Financial Planning Document (DEF), where the debt and deficit objectives are marked, and by October the draft or preliminary draft of the General State Budgets (PGE) will be ready. The question is, with a constant year of rising interest rates, how much money will the Meloni government have to allocate to pay interest on the debt: Matteo Renzi, president of the Council of Ministers between February 2014 and December 2016, recalls that in his last budget year (the one applied in 2017), with a 131.5% debt to GDP (Gross Domestic Product) and interest rates around 0.5%, he had to dedicate nothing more and nothing less than 77,000 million just to pay these interests. From there, let's deduce how much this amount can amount to with almost thirteen more points of debt and interest rates that have been between 2 and 4% for more than six months.
In this regard, it should be remembered that the Executive presided over by Roman politics has one of its main weaknesses in its economic area: for the first time in decades, and with the exception of the “giallo-rosso” governments (where the historian Gualteri assumed this portfolio), the head of Economics and Finance is not a brilliant economist (like Sacomagni, Padoan or Franco), but a born politician like Giancarlo Giorghetti, the “thinking mind” of Salvini's Lega. And it is that Meloni managed to bring to Rome who was his real candidate, the prestigious economist Fabio Panetta, but the one who until then had been a member of the ”board" of the European Central Bank (ECB) did not come to work under Meloni, but to replace Ignazio Visco as Governor of the Bank of Italy. Which led to what is known, in popular parlance, to "undress one saint” to "clothe another."
Of course, Meloni is fortunate that the European Commission, which is the one who must authorize the new budgets, is weaker than ever: as there are elections to the European Parliament in June 2024, the president of this (the German Von der Leyen) is less and less assisted, since one of the vice-presidents (Frans Timmermans, of the socialist family) has announced that he will be a candidate for the elections to be held this autumn in the Netherlands, while the other vice-president of relumbrón (the liberal Margret Vestagher) is fully involved in taking over the presidency of the European Investment Bank (EIB).
The reality is that the most indebted states (Greece, with 168.3%; Italy, with 143.5%; Portugal, with 113.8%; Spain, with 113.5%; and France, with 112.4%) committed themselves, in the renegotiation of the Stability Pact that took place a few months ago, to reduce debt in the years immediately to come. And, in addition, Meloni knows that, if he wants to continue receiving money from the “Recovery Fund”, he must comply with the established rules. His problem is that the main coalition ally, the Deputy Prime Minister and head of Infrastructure Matteo Salvini, is a rabid anti-Europeanist: his year of constant conflicts with the former president of the Commission Jean-Claude Juncker remains to be remembered. The current Executive is also supported by the other Deputy Prime Minister and head of Foreign Affairs, Antonio Tajani, former European parliamentarian, former European commissioner and finally former president of the European Parliament. Tajani is a very well-liked person in community circles, but he contributes almost half of the parliamentarians that Salvini to the "maggioranza", so Meloni in the end tends to lean into a Salvini who assures him the practically absolute majority.
The truth is that an economy (the third in the eurozone) that grew by 3.7% in 2022 is once again facing the abyss of recession. Meloni has already dropped that there will be a reduction in spending on both youth and Culture, but what should be done so that unrest does not re-establish itself in Transalpine politics after years of quite tranquility? The answer to that, in weeks to come. -
Pablo Martín de Santa Olalla Saludes is a Professor at the Camilo José Cela University (UCJC) and author of the book History of Republican Italy, 1946-2021 (Madrid, Sílex Ediciones, 2021).