The right-wing alliance, led by Giorgia Meloni, will almost certainly form the next government in Italy, following the 25 September election.
Compared with the former government led by Mario Draghi, the new administration will be likely less in favour of EU integration, more fiscally loose, less consistently anti-Russia and more affirmatively anti-immigration.
The victory of the overall bloc is in line with expectations: an aggregate of 43.13% of votes compared with 45.6% predicted by the last opinion poll, published on 7 September.
The main difference between the two figures is the slightly better-than-expected performance of Meloni's Brothers of Italy (26.2% versus 25.1%) and the significantly worse-than-expected performance of Matteo Salvini's League (8.9% versus 12.5%).
Despite Salvini’s weak performance in the election, he remains essential for the rightist majority bloc. Therefore, his influence, particularly in conjunction with Berlusconi, over the policies of the coalition may be greater than the initial relief in Italy equities (up 1%, at the time of writing) implies. That influence has important repercussions for European emerging markets.
Note, that the two-thirds majority needed to change the constitution was not expected.
Below, we consider the implications of such policy shifts for European emerging markets, with relevant previously published reports linked.
Positive potential impact
Hungary – where a portion of EU funding, equivalent to almost 4% of GDP, is at risk from its anti-democratic breaches of the rule of law principle, and, to a lesser degree, Poland (which pulled back sooner than Hungary).
Russia – an opportunity to create division within the EU sanctions effort, leveraging on Italy's reliance on Russian gas imports (19.2% of total Italy energy supply, compared with 12.5% for Germany, and 3.6% for France), and on Meloni's reliance on partners Salvini and Berlusconi, who are both demonstrably softer on Russia.
Turkey – an opportunity to exploit its role as a buffer state for irregular migrants into the EU from the Middle East and East Africa, and, via its influence in western Libya and North Africa, in return for Italy's support as a dissenting voice in the Eastern Mediterranean Gas Forum (which is in competition with Turkey over gas transit routes).
Negative potential impact
Greece and high debt countries in the EU periphery – EU fragmentation concerns may again come to the fore should Italy shift to a looser fiscal stance and delay reforms, required for the disbursement of EU post-Covid recovery funds. Italian government bond yields would widen relative to German ones, with similar strains rippling through other highly indebted sovereign parts of the EU; eg Greece has gross debt/GDP of 185% in 2022, according to IMF forecasts.
Morocco, Tunisia – both of these countries have a high contribution to GDP from remittances, c5% and c4%, respectively, from the EU, the growth of which is partly reliant on continuing immigration.
Ukraine – the reciprocal of the Russian point argued earlier.