2023-11-17 15:58:36
Like the Roman god Janus, Giorgia Meloni seems to have two faces. Once she came to power in October 2022, the President of the Italian Council, leader of the far-right Fratelli d’Italia party, renounced several of her campaign promises and merged into the economic line of her predecessor, Mario Draghi.
“During her campaign, Giorgia Meloni promised to increase social spending and criticized European budgetary rules,” recalls Luca Tomini, teacher-researcher in political science at the Free University of Brussels. A new face to reassure the European Commission and the markets. During the first months of her mandate, she thus committed to controlling the budget of the second most indebted state in the euro zone – after Greece – with a debt which stands at 140% of gross domestic product (GDP). .
This Friday, November 17, the Moody’s rating agency, which assesses the capacity of states to repay their debt, could downgrade Italy’s rating. Will Moody’s choose to move Rome into the “speculative” category, thus classifying its debt among “junk bonds”?
15.7 billion euros of additional debt
In recent weeks, the new face displayed by Giorgia Meloni has cracked. In October, the presentation of the budget brought back fears on the markets. The government is counting on a deficit of 4.3% (compared to 3.6% initially announced) with new spending to support households, financed in particular by 15.7 billion euros of additional debt. Budgetary control will wait.
“There are doubts about the financing of this budget. The State lacks resources in particular due to a structural weakness of the tax system: 79 billion in taxes are not collected, underlines André Tiran, professor emeritus of economic sciences at the University of Lyon 2. The Ministry of Finance has unrecovered debts totaling 1,000 billion euros in total. »
A sign of the feverishness of the markets, the rate on ten-year Italian bonds reached 5% at the beginning of October, two points higher than the German ones which serve as a benchmark within the euro zone. This risk premium demanded by investors for lending to Rome rather than to Berlin has, however, tended to decline since then.
Weak growth forecasts
Fears are also explained by the slowdown in Italian growth, which should lead the government to revise downwards its growth forecast for 2023, which it has set at 0.8%. GDP actually stagnated in the third quarter according to the first estimates from Istat, the Italian INSEE. The peninsula is nevertheless doing slightly better than the euro zone, which saw its GDP decline by 0.1% on average over the same period.
For now: after increasing by 3.9% in 2022, Italian GDP would increase by 0.5% in 2023 and by 0.2% in 2024 – compared to 1% in 2024 for the euro zone – according to projections from the French Observatory of Economic Conditions, published on October 17.
Illusive growth
The Rexecode institute, for its part, forecasts growth of 0.7% in 2023 and 0% in 2024. “Italy is in a paradoxical situation. Its GDP has grown more than French GDP since the end of 2019. But there are concerns about the health of the economy in the medium term, observes Charles-Henri Colombier, director of economics at Rexecode. Indeed, it is a sham growth that is based on the construction sector; the latter was artificially boosted by the 110% bonus. »
This measure was launched in 2020 by the government of Giuseppe Conte (Five Star Movement). It consists of “over-reimbursing” energy renovation work, via a tax credit mechanism. Cost for the State: more than 105 billion euros according to estimates by the Meloni government, which restricted this system. “With this system, governments have built a house of cards which has a good chance to collapse in the future when tax incentives are withdrawn”, believes Charles-Henri Colombier.
Laborious implementation of the recovery plan
Another source of uncertainty: the European post-pandemic recovery plan. The peninsula is the first beneficiary: it was granted 191.5 billion euros, to which the Italian state added 30.6 billion euros. An envelope divided into different tranches, the payments of which are conditional by the European Commission on the achievement of objectives. Italy must have spent these funds by 2026.
However, implementing the plan is proving laborious. A failure by Rome in this area would have a national impact, but not only that. It would compromise Brussels’ attempts to convince the 27 member states to reproduce such a common investment plan in the future.
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