Next Italian government must honour EU reform commitments, warns Draghi

Mario Draghi urged parties vying to win Italy’s election to uphold the country’s reform commitments after the rightwing coalition that leads polls unveiled costly economic proposals and hinted at potentially renegotiating the EU-funded coronavirus recovery plan.

Speaking at a conference in the coastal town of Rimini on Wednesday, in one of his last public appearances as prime minister, Draghi said that while Italy’s economic prospects were good, the next government should not overlook the worsening international outlook, the energy crisis and the structural reform objectives agreed with Brussels.

“Domestic credibility goes hand in hand with international credibility,” he said. “Italy has never been strong when it decided to set out on its own, Italy’s place is at the heart of the European Union and [Nato],” he said.

Draghi’s successor will have to tackle slowing growth, rising inflation and the prospect of energy rationing if Russia makes further cuts to gas deliveries in response to the EU’s support for Ukraine, just as the new government will have to pass a new budget.

Eurosceptic parties within the rightwing coalition, which could garner between 47-50 per cent of the vote on September 25, according to polls, recently hinted that they could review the details of Italy’s €200bn EU-funded recovery plan and the structural reforms, such as a new competition law, associated with it. The rightwing block is led by Brothers of Italy, whose leader Giorgia Meloni is frontrunner to be Italy’s next premier, and includes Matteo Salvini’s League and Silvio Berlusconi’s Forza Italia.

Draghi said the EU-funded recovery plan is the “litmus test of our credibility”, adding that the majority of Italians expected the long-awaited reforms and investments to be carried through.

“There is very little appetite in Brussels to revise Italy’s recovery fund reforms, partly because of [which politicians would] be asking in Rome, but also because of the precedent it could set with other countries, not least Poland and Hungary, where negotiations over rule of law reforms are ongoing,” according to Mujtaba Rahman, managing director for Europe at Eurasia Group.

The rightwing coalition unveiled proposals envisaging broad tax cuts, a limited tax amnesty and generous minimum pension increases. A combination of such measures would cost more than €80bn, according to official estimates. Such spending could put Rome on a collision course with Brussels, analysts warn.

“As EU fiscal rules will remain suspended next year, there is some additional leeway for the government to spend more to address cost of living concerns, but Brussels will want guarantees the measures are well-targeted, proportionate and actually address the problems that inflation is creating,” Rahman said.

Italy has already spent €40bn to support businesses and households facing rising costs. Energy and inflation were cited as the two most pressing issues for Italian businesses and households, according to polling, and experts believe voters will be swayed by the strongest proposals on how to curb rising utility bills and manage wider increases in the cost of living.

In Rimini, Meloni questioned the EU’s “strategic choices”, blaming past missteps for the bloc’s dependence on Russian energy. She also backed a proposed EU-wide cap on gas prices and criticised the centre-left Democratic party’s proposal for temporary price controls on energy.

“Beware about imposing a national price cap,” Meloni said. “Gas producers are not state-owned companies, unless we want to nationalise them.”