It’s not a crisis yet, but the honeymoon is well over. For two months, the distrust of the financial markets towards the government of Giorgia Meloni has been coming back quietly. An exceptional tax on banks, which took investors by surprise, a change in corporate governance rules and, above all, a budget deficit greater than expected have revived doubts. A sign of these tensions, Italian bond interest rates reached 5% at the beginning of October, almost two points higher than German bonds, which are at 3%. Two years ago, this gap was only one point.
“The Italian government shows its true face”worries, in a note, Nicola Nobile, from the Oxford Economics firm. “Investors hate surprises, and suddenly the Meloni government is deviating from the fiscal prudence it demonstrated in the first year, adds an investor based in the City of London, a fine connoisseur of the Italian political world. However, Italy’s problem is that it is a financially very vulnerable country, about which doubts arise regularly. This requires each government to be very clear in its message to the markets. »
With a debt of 140% of gross domestic product (GDP), Italy is the most indebted country in the euro zone, after Greece. “We don’t think it will turn into a crisis in the short term, but the long-term risks have clearly increased”adds Andrew Kenningham, of Capital Economics.
The 2024 budget does not satisfy
Everything had started so well. The government led by Giorgia Meloni, of the post-fascist Fratelli d’Italia party, was extremely careful, when it came to power in October 2022, to show its credentials. His budget essentially followed that put in place by his predecessor, Mario Draghi, the former president of the European Central Bank, a highly respected economist in the world of finance.
The first hiccup came in August, when the Italian government suddenly announced an exceptional tax of 40% on “excess profits” banks, taking observers by surprise. Italian banks immediately fell on the stock market, and the government had to quickly reverse course, ultimately reducing the additional tax by half of the initial announcement. At the time, observers still gave him the benefit of the doubt: “Prime Minister Meloni seems keen to maintain the surprisingly good reputation she has earned since coming to power”Mr. Kenningham then wrote in a note.
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