Italy: A Year and a Half Under Meloni’s Government
Giorgia Meloni. “Giorgia Meloni 2023” by “Governo Italiano” licensed under CC 3.0
The Current State of Italy’s Economy
Italy’s economy has stagnated since the great financial crisis. Real GDP has not grown since 2007, standing at a low 0.7% in 2023. While the average OECD country’s real GDP has increased by more than 25% in that time period, Italy is poorer today than 15 years ago.
Italy has weathered recent crises well. Its GDP has increased by 4.2% since the end of 2019, showing a better postcovid recovery than every other G7 economy in Europe.
However, behind this success hides one of Italy’s biggest economic weaknesses, its public expenditure. Currently, Italy’s debt stands at about 140% of GDP, 1.4 times larger than the entire Italian economy's annual output and the third highest in the OECD.
The Italian administration has consistently shown excessive spending in two particular sectors: pension funds and interests. Italy’s demographics problem and its declining population puts an increasing strain on its pension system, which is likely to run out of money soon. Instead of reforming it, which would be largely contested, Italy takes on large amounts of debt to keep its system running. Therefore, it pays substantial interest on its debt, especially as the European Central Bank (ECB) raised its key rate from below zero to 4% in 2022-2023.
High levels of debt contribute to Italy’s lack of investment compared to its OECD neighbours, specifically in public services like education and administration. As a result, Italy has one of the most inefficient public administrations in Europe. The average time to resolve a contract judicially is almost twice the average time it takes in an OECD country. It lacks skilled workers and the government cripples businesses with excessive regulations while foreign investors are reluctant to come to Italy.
Therefore, small and medium size businesses which make up the backbone of Italy's economy often fail to survive. According to the OECD, almost 2% of its companies shut down every year in Italy. It is no surprise that total factor productivity has fallen by 13.7% in Italy since 1970, and real wages have declined since 2013.
In October 2023, Giorgia Meloni’s government announced €24bn in tax cuts to stimulate growth and an additional €1bn on new initiatives to encourage Italian women to have more babies. To finance this, it will cut around €5.5bn in spending in the already weak public sector and further increase its fiscal deficit to 4.3% of GDP. Meanwhile, while Meloni has expressed her intention to change the pension system, Italy's government has revised its plans to increase the retirement age this year. Nonetheless, economists expect real GDP to increase by 1.2% in 2025 under Meloni’s fiscal stimulus plan, with higher levels of investment and imports.
Italy’s Foreign Relations: North America and Africa
When looking into foreign relations, Meloni made a visit across the Atlantic for her tour of G7 countries. In early March of this year, she met with US President Joe Biden and Canadian Prime Minister Justin Trudeau. Through remarks made with both leaders, Meloni discussed similar topics and highlighted the strong and long-standing relationships between Italy and both Canada and the US. In both discussions, Trudeau and Biden made clear their continued support for Ukraine in the war against Russia, the tensions in the Middle East including the increase in Humanitarian Aid in Gaza, and mediation between Israel and Gaza.
With the next G7 summit scheduled in Italy this June, Meloni has emphasized her stance on Africa and the importance of G7’s special attention to the continent. She hopes to launch a global alliance against human traffickers hoping to help calm the Mediterranean Migrant crisis which Italy has been taking the brunt of over the past decade. The PM continued with remarks on the importance of getting to the root cause of this crisis and the need to support Africa on an equal basis; as it “has been neglected and exploited with a predatory approach for a long time”.
In addition, Meloni also made sure to point out the importance of boosting strategic cooperation and improving bilateral trade with both Canada and the US. This was highlighted by the bilateral exchange between Italy and the US being 102 billion dollars in 2023, the highest ever recorded.
Looking into the future Meloni has outlined her vision for the future of the “Mattei Plan”. This plan is meant to stimulate growth, development, and prosperity in the continent of Africa through a variety of grants, loans, or guarantees. This project is set to have an initial funding of 5.5 billion euros, which would consist of nine pilot projects that would focus on growing the six pillars: education and training, agriculture, health, energy, and water. The goal of this plan is the flourishing of new partnerships with African countries with innovative and sustainable ways of development.
It will also be interesting to see the effects of the 2024 US Presidential election on the EU landscape. If the current status quo continues and Biden remains in power it will be business as usual for Meloni. But in the case of a Donald Trump win, this would present an opportunity for Meloni and her government. Her strong right-wing ideology is found to be very attractive to many American conservatives and she would likely become the new point person for future US-EU relations.
Italy and the European Union
Meloni has skillfully handled Italy’s relations with the European Union. After widespread skepticism around potential anti-European stances due to Meloni’s party Fratelli d’Italia being linked to post-fascist tradition, the first female Italian PM proved everyone wrong. She has highlighted the importance of a protagonist role for Italy in the EU and vividly supported the Atlantic alliance, instead of adopting diverging antagonist perspectives as other rightwing figures such as Hungary’s Orbàn or France’s Le Pen.
Meloni has also been a key player in altering the EU migration policy toward aiding migrant-sending countries. The EU-Tunisia deal of 2023 of €1 billion destined to fight irregular migration is a clear example of the Italian PM's efforts towards such a policy shift in EU dynamics. Unfortunately, Italy still struggles with illegal migration, counting more than 153,400 irregular arrivals as of December 2023, compared to less than 100,000 the year before. But managing such flows is likely to take time. Multilateral efforts taken by Meloni using EU mechanisms and cooperation with migrant sending countries such as Egypt could pay off.
Italy - alongside France - has also played a key role in bringing Orbán to agree to a €50 billion aid to Ukraine earlier in February after months-long diplomatic efforts, sending a powerful message to the world that Europe is still united, while the American deal was stuck in Congress.
The upcoming EU Parliamentary elections in June 2024 will be decisive for Giorgia Meloni’s influence over EU policies. According to forecasts from the policy tank European Council on Foreign Relations, right-wing parties will probably emerge victorious from these elections, even though a formal alliance between them is unlikely due to diverging perspectives on EU integration. However, Meloni could possibly emerge as an implicit leader of such a movement considering her close relationships with both rightwing leaders and President of the European Commision von der Leyen, who will likely need Rome’s support to extend a second term, as demonstrated by her recurrent travels to Italy.
Italy in the Indo-Pacific
In 2019, under Conte’s premiership, Italy became the first and only G7 country to take part in the Chinese Belt and Road Initiative (BRI), a vast investment project carried by China to expand bilateral relations between Beijing and the world. Meloni decided Italy would withdraw from the initiative, after unmet expectations accompanied by growing geopolitical fears towards China.
However, Meloni’s administration seems to have understood the power shift towards the Indo-Pacific, as demonstrated by recent efforts to reinforce Italian presence in the region such as Meloni’s fruitful visits to India, following stalled relations, as well as to Japan. Last summer, Italy has boosted its security role in the region through naval demonstrations in Thailand, Vietnam or Malaysia, after building up on Italy-Indonesia defence cooperation marked by the acquisition of eight ships fabricated by Fincantieri in 2021 and Italy’s defence minister Guido Crosetto visit in December 2022.
While Italy’s involvement in the region is still following a larger EU initiative, such recent growing commitment lays the base for a real and unique Italian strategy in the Indo-Pacific.
Conclusion
Italy’s economic issues remain salient. Unsustainable debt levels and demographics make coordinating policy shifts extremely difficult for Meloni. However, the Italian PM is attempting to induce positive shocks through new reforms including substantial tax cuts, while having skilfully navigated the international sphere through securing links with North American nations. The upcoming US and European elections are likely to reinforce Meloni’s influence, who has also started to lay solid foundations for an Italian strategy in the new power sphere: the Indo-Pacific.