This is how Pietro Baffico, an economist for Europe from abrdn, comments on the results of the political elections in Italy.
“The elections in Italy led to a large majority for the right-wing coalition in both the Senate and the Chamber of Deputies, in line with the polls and with our expectations. The results increase the downside risks for Italy’s prospects should the new government clash with European institutions. The elections were characterized by a record abstention rate, with a participation of around 64%. This phenomenon is not new: all over Europe voters seem less and less motivated and in the last year they have given way to far-right and populist parties, in a context of crisis in the cost of living and the raging of the war in Ukraine ”.
“The leader of the Brothers of Italy, Giorgia Meloni, who is preparing to become the first woman premier in Italy, has gradually mitigated the far-right and Eurosceptic rhetoric, a transition that suggests a more limited confrontation with the European institutions. In an effort to present the coalition as trustworthy, Giorgia Meloni insisted that she will be cautious with public spending and that she will consider appointing moderate ministers to key government roles. Furthermore, after the result she took on a sober tone, acknowledging the serious economic challenges that await her. For investors, such restraint can help mitigate the market’s initial reaction to the election results, especially when you consider that the broad and sustained advantage of the polls has given the market plenty of time to price the election outcome. ”
However, the economist warns:
“But if it is true that the coalition parties have significantly softened their Eurosceptic positions in this last period, much will depend on their resolve to relax fiscal discipline and to partially revise the reform program already agreed under Draghi’s government. . The first test will be the Budget Law, which will have to be approved already in the autumn. The tensions between the new government and the European institutions are therefore a risk, which could compromise the disbursement of European funds, add downside risks to Italy’s prospects and limit the ECB’s ability to contain sovereign spreads “, in this eventual flare-ups of the BTP-Bund spread.