By Sarah Rossi and Alicia B
MILAN (Reuters) – Any new government in Italy will have little scope to roll back reforms or pursue “unconventional” economic policies due to political and market constraints, ScopeRatings said in a report seen by Reuters on Thursday.
A conservative bloc of the hard-right Brothers of Italy led by Giorgia Meloni, Matteo Salvini’s League, and Forza Italia led by Silvio Berlusconi appear poised to win a parliamentary majority in the September 25 elections, with financial markets already on the alert about the political changes their alliance may yet follow. The election.
However, Scope Ratings said Italy is likely to remain on its reform path, adding that this scenario supports its “BBB+” rating with a “stable” outlook for Italy.
“We believe that the constraints faced by any Italian government once in power will significantly limit its room for maneuver and thus ultimately define a narrow set of economic policy options,” the rating agency said in the report.
There are concerns that the new government may abandon some of the reforms needed to ensure Italy gets about 200 billion euros ($199 billion) in EU funds for its Post-COVID Recovery and Resilience (PNRR) plan.
The statement of the right-wing coalition promised deep tax cuts, early retirement and exemptions to settle ongoing tax disputes, which appear difficult to implement in a country whose public debt targets 147% of GDP this year.
“A far-right coalition capable of implementing its political agenda over several years is not a foregone conclusion even if the parties win a parliamentary majority, given the significant political differences in many areas and the competition between their leaders,” Scope added.
The rating agency also cited Italian checks and balances and the public conflicting with some parties’ preferences as potential obstacles.
“The risks that Italy may postpone or even reflect through prudent fiscal reforms and policies over the next 12 to 18 months are manageable,” she said.
According to Scope, Italian public debt is likely to remain at around 145%-150% of GDP over the coming years, resulting in total financing needs of about 25%-30% of GDP.
“With the 10-year BTP (yield) already at around 4%, this means that fiscal space, if any, for the next Italian government is very limited given the country’s weak medium-term growth prospects,” the agency added.