Stephen Booth is Head of the Britain in the World Project at Policy Exchange.
Italy heads to the polls on Sunday and it is likely to be yet another illustration of the uneasy relationship between the country’s volatile democratic politics and the strictures of Brussels’ political and economic orthodoxy.For several weeks, opinion polls have been predicting that the parliamentary election is likely to produce a governing coalition made up of various parties of the right. Giorgia Meloni’s Brothers of Italy, which has its roots in the post-fascist movement, is predicted to be the biggest single party and is running on a joint programme with Matteo Salvini’s League and Silvio Berlusconi’s Forza Italia. Meloni has come from relative political obscurity – she was Youth Minister in a Berlusconi administration over ten years ago – to be on course to become the country’s first female prime minister. In the 2018 parliamentary elections, Brothers of Italy received only 4 per cent of the vote. In this election, it is on around 25 per cent.Meloni is benefitting from her status as the ‘none of the above’ candidate and, in this sense, her rise, surfing a wave of anti-establishment protest against Rome and Brussels, is nothing new in Italian politics. The Five Star Movement sprung from nowhere during the eurozone crisis and became the largest party in 2018. Following the collapse of the anti-establishment Five Star-League coalition during the pandemic in 2021, unlike Salvini and Berlusconi, Meloni was the only major party leader who refused to go into technocrat and former ECB President Mario Draghi’s national unity cabinet. Brothers of Italy has since mopped up support from both Five Star and predominantly the League, whose poll share has fallen from over 30 per cent to under 15 per cent since 2020. However, Meloni has sought to shed the archetypal image of the European radical right party, epitomised by Marine Le Pen and Salvini. For example, any fears that Meloni might seek to undermine the West’s response to Russia’s invasion of Ukraine would seem misplaced. Whereas Salvini has historically had close links to the Kremlin and has criticised EU sanctions on Russia, Meloni strongly backed Draghi’s support for Ukraine while in opposition and has made a point of underlining her pro-NATO stance. While a right-wing coalition would not significantly alter Europe’s approach to Russia, relations with the EU are likely to be more complicated under Meloni. Brothers of Italy and the League have traditionally both had Eurosceptic and sovereigntist outlooks and they are likely to challenge the traditional Brussels model. But, like other European anti-establishment parties within touching distance of power, Meloni has sought to stress her party’s moderation throughout the campaign. For example, the coalition programme makes clear that the parties are committed to Italy’s membership of the EU and want to remain in the eurozone. Nevertheless, it is clear that on many issues, such as institutional reform and social issues, Meloni is closer to Viktor Orban and Poland’s Law and Justice party, than she is to Emmanuel Macron or Olaf Scholz. In this sense, the new government would tilt the balance of power within the EU. This could be relevant for UK-EU relations, for example in any further dispute over the Northern Ireland Protocol, where those countries sceptical of Brussels’ power and/or closest to the Russian front line are most reluctant to enter a bitter trade dispute with the UK. A sovereigntist Italian government would raise another hurdle to further EU integration. This week, EU ministers discussed proposals, backed by Macron and Scholz, to move from unanimity to qualified majority voting in some areas of foreign policy decision making. Whereas Draghi’s government reportedly favoured such a move, a right-wing Italian government would balk at such an infringement on national sovereignty. Given its size, the health of the Italian economy has wider ramifications for the eurozone and European economy. Faced with the energy and cost of living crisis, Meloni’s right-wing coalition is offering tax cuts for individuals and businesses, combined with more social spending, such as higher pensions and benefits for families. However, with debt at around 150 per cent of GDP, it is difficult to see how these spending promises can be financed without risking the government’s fiscal credibility with markets. Under plans negotiated between Draghi and the European Commission, Italy is set to be the largest single recipient of the EU’s Covid recovery and resilience fund, with €69bn in grants and €123bn in loans earmarked for the country. Access to the funds is contingent on Italy carrying out economic reforms, including improving competition, which are somewhat at odds with Brothers of Italy’s protectionist instincts. Meloni has said a review of the plan is a priority for her new coalition, but any clear departure from Brussels’ guidelines would raise fears that Italy could lose out on the EU recovery package, and may also no longer be eligible for ECB support, which is helping to keep Rome’s borrowing costs down. Aside from the political and economic constraints of the EU, the President retains a significant influence on ministerial appointments – in 2018, President Sergio Mattarella blocked the nomination of an avowedly Eurosceptic finance minister. Therefore, markets appear relatively relaxed about the short-term economic outlook. Indeed, an immediate acute Italian economic crisis seems unlikely. The medium-term challenge is the cocktail of chronically low growth, a very high debt burden, and a world of increasing interest rates without the option of devaluation. A recent IMF review assumed long-term growth was likely to settle at around 0.8 per cent and therefore recommended that the government returns to a 2 per cent primary budget surplus to reduce debt to sustainable levels. Given that the country’s rapidly aging population is predicted to add 1.5 and 2.5 percentage points of GDP to annual pension spending over the medium-term, reconciling the fiscal position with the electorate’s expectations of the state looks increasingly impossible. A new eurozone crisis cannot be ruled out. Italian politics are uniquely volatile and fragmented but, looking around the EU, a Meloni victory would seem part of a wider pattern. Earlier this month, the nationalist anti-establishment Sweden Democrats came second in Sweden. In June, Macron lost his parliamentary majority to anti-establishment parties to the left and right. With the economic situation deteriorating, the political turbulence is only likely to increase.