Italy is again in the center of attention. The probable victory of Giorgia Meloni, leader of the post-fascist party, in the elections on September 25 raises fears of a new debt crisis, similar to the one that the euro zone experienced ten years ago. His program plans to renegotiate the use of funds from the European recovery plan, which could lead to a showdown with Brussels.
Italy is to receive 191 billion euros from the recovery plan, which makes it the first beneficiary in the Union. “This plan is intended to finance structural reforms. But faced with the looming energy crisis, the coalition wants to use these funds in a more short-term way, to manage the crisis,” explains Julien Marcilly, economist at GSA, which advises governments on sovereign debt.
But the Commission does not want to hear about it. Europeans fear a widening of the budget deficit in this country, already indebted to the tune of 150% of GDP – the highest rate in the euro zone behind Greece –, a surge in the interest rate on the Italian debt threatening in the long term the bursting eurozone.
The “flat tax” could be expensive
However, this black scenario does not seem the most likely today, in the eyes of observers. Asked by The crossFrançois Villeroy de Galhau, Governor of the Banque de France, is rather reassuring: “I just note that the various Italian political parties have all marked their attachment to the euro and to European rules. »
In fact, Giorgia Meloni has largely changed her discourse to make it more euro-compatible. While endorsing the most expensive reform projects on the coalition’s agenda, such as the one to introduce a flat tax (flat tax), she warned: “Be careful not to make unrealistic promises. We have to consider our finances. » A proof of pragmatism which was appreciated by Confindustria, the main association of Italian companies.
In 2012, Super-Mario saved the eurozone
The context is also different from that of 2012: Italian banks are better capitalized, companies less indebted, growth stronger, while the first effects of the recovery plan are beginning to be felt. Above all, the attitude of the European Central Bank (ECB) has changed, precisely since the 2012 crisis.
At the time, Mario Draghi, head of the ECB, announced his intention to intervene “whatever it takes” to avoid a surge in the Italian rate. This was enough to calm the markets and prevent the spread from widening between the Italian rate and the rate on the German debt, the “spread”considered the main risk indicator for Italian debt.
“This intervention marked a change in the identity of the ECB”, estimates Marcos Carias, economist of the credit insurer Coface. Since then, the Central Bank has always ensured that the spread don’t drift. It set up, last summer, a new instrument called “anti-fragmentation” which will allow it to react massively in the event of a drift.
Italy, third economy in the euro zone
It can only be activated if Italy strictly respects its reform program which accompanies the release of funds from the recovery plan. But according to Marcos Carias, an agreement between Italy and the European institutions remains the most likely scenario: “Italy is the third largest economy in the euro zone. A crisis would have an unbearable cost: the Commission and the Italian government are obliged to find a compromise”, he judges.
“We can indeed argue that the economic situation has changed compared to when the recovery plan was put in place. The Europeans could therefore decide that a small percentage of the recovery plan funds can be reallocated,” believes Julien Marcilly. This would require an agreement from the European Council, which is difficult to achieve, but possible.