Sara Rossi and Alessia Pe
MILAN (Reuters) – Due to political and market constraints, any new government in Italy will have little to back down on reforms or There is room to pursue “unorthodox” economic policies, Scope Ratings said in a report seen by Reuters on Thursday.
The conservative bloc of Giorgia Meloni’s far-right Italian brother, Matteo Salvini’s coalition and Silvio Berlusconi’s Forza Italia looks set to win a parliamentary majority in September. Voting, financial markets are already wary of policy changes their coalition may take after the election.
Nonetheless, Scope Ratings said Italy is likely to continue its reform track, adding that the situation supports its ‘BBB+’ rating and Italy’s ‘stable’ outlook.
“We believe that the constraints any Italian government will face once in power will significantly limit its leeway to finalize a narrow set of economic policy options,” the rating agency said in a report.
There are concerns that the new government may shy away from ensuring that Italy gets about 200 billion euros ($199 billion) in EU funding The Post-COVID Recovery and Resiliency Plan (PNRR).
Right-wing coalition manifesto promises deep tax cuts, early retirement and amnesty to resolve ongoing tax dispute, on a public debt target of 147% of GDP this year countries appear to be difficult to implement.
“A far-right coalition able to take into account significant policy differences and competition among leaders in many areas is unlikely to implement its policy agenda within a few years even if a party wins a parliamentary majority,” Scope added.
The rating agency also cited Italy’s checks and balances and potential obstacles to the public’s inconsistency with the preferences of some parties.
“The risk of Italy delaying or even reversing reforms and sound fiscal policy is in the coming to 25 months are manageable,” it said.
According to Scope, Italian public debt may remain at 145%-150 % of GDP over the next few years, resulting in total financing needs of approximately 10%-30% of GDP .
“As the BTP (yield) for 10 yr is already around 4%, given the country’s weak medium-term growth prospects , which means that the next government in Italy has very limited fiscal space,” the agency added.