Title: The Meloni Government’s Economic Missteps: A Disappointment for Italy
Introduction:
The recent announcement and subsequent partial reversal of an exceptional tax on bank profits by Italy’s Meloni government has highlighted the inconsistency and shortcomings of its economic policy. This blunder reflects a lack of clarity and a departure from market-based competition, which undermines the attractiveness of the Italian economy. While the Meloni government has received praise for its foreign policy stances, its economic record raises concerns about its commitment to much-needed reforms.
Inconsistency and Shortcomings of Economic Policy:
1. Lack of Clarity and About-Face:
The announcement of the exceptional tax on bank profits, made by Deputy Prime Minister Matteo Salvini late Monday evening, caught many by surprise. The lack of involvement from Prime Minister Giorgia Meloni and Finance Minister Giancarlo Giorgetti reflects a combination of a lack of clarity and a complete about-face in terms of policy. This inconsistency undermines confidence in the government’s decision-making.
2. Opposition and Damaging Effects:
Bankers, investors, and economists reacted overwhelmingly hostile to the tax, which risks damaging the attractiveness of the Italian economy. Olivier Collin of Invesco, a shareholder of UniCredit, described it as a policy shift lacking clarity. Lorenzo Codogno, former Director General of the Italian Treasury, warned that it could cause lasting damage. The government’s failure to consult key stakeholders and experts highlights its lack of a pro-market approach.
3. Weak Legislative Processes:
While Parliament’s approval is still required for the tax to take effect, Italy’s complicated legislative processes suggest that the final version of the measure may be further watered down. This uncertainty exposes the government’s inability to navigate legislative challenges efficiently, raising doubts about its ability to introduce effective economic reforms.
Economic Missteps and Backtracking:
1. Neglect of Economic and Administrative Reform:
Despite being in office for less than a year, the Meloni government has already backtracked on several economic policies introduced by Mario Draghi, the former president of the European Central Bank. These reversals cast doubt on the government’s willingness to push forward with the necessary economic and administrative reforms.
2. Suppression of Competition:
The Meloni government’s approach to economic policy, similar to previous right-wing administrations, inhibits market-based competition. For example, efforts to liberalize the balneari stabilization or lidos, which characterize Italian beaches, were blocked. Additionally, reforms to public procurement law expanded the range of contracts for which competitive bidding is not required, further suppressing competition.
3. Tax Evasion and Weak Reform Commitment:
Repeated tax amnesties and measures that complicate and increase uncertainty in the economy, such as raising the cap on cash payments and limiting card purchases, contribute to Italy’s reputation as a country that allows tax avoidance. These actions undermine the government’s commitment to reform and discourage compliant businesses and households.
Conclusion:
Despite receiving praise for its foreign policy stances, Italy’s Meloni government has showcased inconsistent and inadequate economic policymaking. Its lack of clarity, an aversion to market-based competition, and a tendency to pander to voter and vested interests are concerning. The government’s failure to prioritize economic and administrative reform, along with its suppression of competition, risk further stagnation for the Italian economy. Efforts to address tax evasion and improve the country’s reputation must be prioritized. Overall, international investors and allies should closely monitor this disappointing trend in Italy’s economic policy.
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Happy to see you again. On Monday, the Italian government announced an exceptional tax on bank profits. On Tuesday, the government – surprised by the overwhelmingly hostile reaction from bankers, investors and economists – partially reversed the measure. Please find me on tony.barber@ft.com.
The biggest mistake
I’m going to step forward and call this episode the biggest blunder of Prime Minister Giorgia Meloni’s government since his right-wing coalition won the legislative elections last September.
The tax reflected “a combination of a lack of clarity and a complete about-face in terms of policy”, according to Olivier Collin of Invescowhich is a shareholder of UniCredit, the second Italian bank.
It was quite extraordinary that a measure of such importance had been released neither by Meloni nor by Finance Minister Giancarlo Giorgetti, but by Deputy Prime Minister Matteo Salvini – and late Monday evening.
In a damning verdict, Lorenzo Codogno, former Director General of the Italian Treasury and founder of LC Macro Advisers, told his clients that the initiative “risks lasting damage to the attractiveness of the Italian economy”.
Parliament’s approval is still required for the windfall tax to take effect, and anyone familiar with Italy’s complicated legislative processes will know that the final version of the measure could end up watered down even more than it looks. was on Tuesday.
But the significance of this week’s events goes beyond banks and windfall taxes. The inconsistency and shortcomings of the Meloni government’s economic policy are now visible to everyone.
In short, the government eschews serious economic reform, has no taste for market-based competition, and panders to the voters and vested interests that form the basis of its support. As Codogno said, the windfall tax “comes from a right-wing government that does not have a pro-market approach.”
This should come as no surprise. Precisely because Meloni’s government is made up largely of the same coalition of right-wing parties that has often ruled Italy ever since. the late Silvio Berlusconi burst onto the political scene in 1994, his administration replicated many of the mistakes of previous governments.
Applause for Meloni’s foreign policy
Since the Meloni government took office in October, however, much of that has flowed under the radar. One reason is that instead of focusing on the coalition’s economic policies, many commentators have chosen to focus either on its foreign policy or its right-wing cultural agenda at home.
In foreign policy, Meloni received much praise from Italy’s allies. She has been a strong supporter of NATO support for Ukraine. From an American perspective, she earns even more kudos for pointing out that she can withdraw italy of China’s Belt and Road initiative.
We should indeed give credit where credit is due. In a country where some political parties – including the League and Forza Italia, two of the three in Meloni’s coalition – have shown sympathy for Russia, she has done well to maintain the political line vis-à-vis the EU. Ukraine.
In the meantime, this article from the New York Times by David Broder, author of the recently published book Mussolini’s Grandchildren: Fascism in Contemporary Italygives an idea of how liberal commentators are highly critical of Meloni’s policies on immigration and gender issues.
An “invitation to tax evasion”
But any assessment of a government’s overall performance must take into account its economic record. This is especially true for Italy, which has stagnated since the 1990s and is under constant market scrutiny due to its high public debt, weak growth and uncertain long-term prospects.
Although it has been in office for less than a year, the Meloni government has taken sufficient steps to cast doubt on its real will to push forward the economic and administrative reform program set out by Mario Draghi, the former president of the European Central Bank who was his much-admired predecessor as prime minister. In fact, the government is in some ways backtracking on Draghi’s policy.
Examples include the initiative, contained in Italy’s 2023 budget, to raise the cap on cash payments in transactions to €5,000 and increase the threshold above which merchants can decline card purchases banking. Le Monde, French newspaper, quotes former Italian Prime Minister Enrico Letta:
“This finance law is like an invitation to tax evasion.”
Do not open the beaches
Then consider how Meloni’s government blocked efforts liberalize the virtual monopoly that private clubs have on the balneari stabilizationor lidos, which characterize Italian beaches.
Draghi had foreseen open up this sector, and the EU also wanted changes. But the natural instincts of the Meloni government, like those of Berlusconi administrations, work against promoting competition.
My third piece of evidence concerns amnesties for tax offenders. These were a feature of the Berlusconi era and – guess what – they appeared in the budget of the Meloni government, as described in this report by EY, the international consulting group.
Repeated tax amnesties do nothing to redeem Italy’s reputation as a country where people who don’t pay their fair share of taxes get away with it because the government they vote for lets them go.
Another measure that suppresses competition is the “reform” of the Meloni government public procurement law. The net effect of the change is to expand the range of contracts for which competitive bidding is not required.
Attacks on the ECB
All these measures caught the attention of the European Commission which, in its latest report on the Italian economy, notes:
“Frequent tax policy changes increase uncertainty in the economy, making the tax system more complex and increasing the burden on compliant businesses and households.”
A certain tension is evident in the relations of the Meloni government with the European institutions. In June she shows total contempt for the European Central Bank’s independence in monetary policy when it complained to the Italian parliament: “The ECB’s simplistic recipe of raising interest rates does not seem to many like the right way to follow.”
Meanwhile, the EU has delayed releasing funds to Rome from its post-pandemic recovery program due to questions about the type of projects to which Italy has allocated funds and on the government’s broader commitment to reform.
Like Amy Kazmin and Giuliana Ricozzi from the FT brought back from Rome in May, these problems were predictable. Between 2014 and 2020, Italy spent only 34% of the €126 billion in EU cohesion funds it had due to weak local administrative capacity and a bloated bureaucracy.
Still ahead in the polls
It is striking that, despite the lack of reform and the general weakness of the economy — which contracted in the second trimester — Meloni’s party, the Brothers of Italy, holds a comfortable lead in the polls.
There are many reasons for this, including the disarray of left-wing opposition parties.
But in terms of economic policy, the Meloni government is a severe disappointment. International investors and Italy’s allies should watch this worrying trend closely.
Closer links between Italy and the United States rattle China — an article by Andrew Novo for the Washington-based Center for European Policy Analysis
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Imports from China to the EU, including sensitive technologies and critical minerals, have increased in recent years despite European attempts to ‘de-risk’ economic ties with Beijing, reports FT’s Valentina Romei
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Fifteen years after the 2008 war between Georgia and Russia, the question of whether it started on August 7 or August 8 is one of the most politically sensitive in the South Caucasus state, writes Joshua Kucera for Radio Free Europe/Radio Liberty
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