New Italian government led by Giorgia Meloni is officially in charge now

Italian headline inflation decelerates in January, courtesy of energy

After passing the confidence vote in both branches of parliament, the Meloni government is now fully empowered. We expect a prudent approach to the budget, and a bias towards cheap but visible measures which should help to contain political risk

The Meloni government is fully empowered after passing confidence votes in both branches of government Source:
The Meloni government is fully empowered after passing confidence votes in both branches of government

Meloni government easily passed both confidence votes

After passing a confidence vote at the Lower House yesterday (235 votes in favour out of 400), today the Meloni government got the rubber stamp also from the Senate (115 votes in favour out of 206), and is now fully empowered.

Meloni keen to reassure on Atlantic alliance and relationship with European institutions

In her parliamentary address before the confidence votes, PM Meloni had broadly outlined the programme for the legislature. She sounded aware of the scope of short-run challenges and is very keen to reassure her enlarged audience about the international positioning of Italy and the relationship with European institutions. On the first, she re-affirmed that under her leadership Italy will remain well anchored into the Atlantic alliance, unambiguously supporting Ukraine. On European integration, she clarified that the promised defence of national interests will be met by acting “from within”, in an attempt to better steer the process when facing crises and external threats. The absence of any reference to Italexit options of sort is clearly reassuring, but the way this strategy will be implemented is still unclear.

Prudent approach on economic matters, for the time being

When dealing with economic matters, Meloni adopted a relatively prudent approach, acknowledging that in the current deteriorating economic environment the short-term priority will be to refinance the set of measures to help households and businesses weather the energy price shock (energy bills, temporary reduction of fuel tax). As this will likely use up most available resources, she added that some planned measures (tax wedge cuts and extension of the flat tax) will only gradually be introduced. We thus suspect that the government will set up a priority list topped by those measures bearing a small monetary cost tag but high symbolic value. The proposal by Salvini to raise the limit for cash transactions to €10K seems to point in this direction. The replacement of the expiring early pension scheme (the so-called level 102) will also likely be high in the priority list, as inaction on the subject would bear a high political cost.

Frictions among coalition to remain under control in the short run

After some frictions with junior ally Forza Italia when the list of ministers was compiled, tensions within the government alliance have seemingly cooled down. Furthermore, the appointment of Giancarlo Giorgetti, an experienced moderate politician from the Lega, in the key role of finance minister should in principle reduce in perspective the risk of political instability coming from the benches of the Lega.

2023 budget and RRF implementation as forced priorities

All in all, we remain convinced that in the short run PM Meloni will have very limited room to manoeuvre on the economic front, with priorities mainly set by external constraints (energy inflation) and by the need to implement the Recovery and Resilience facility measures to contrast the incoming recession.

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Italian headline inflation decelerates in January, courtesy of energy

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