During the election campaign, Italy's election winner made expensive promises: taxes are to be reduced and at the same time the burdens of inflation and the energy crisis are to be offset. That doesn't go well with the European fiscal rules and Italy's high level of debt.
In reaction to the swing to the right after the election in Italy, the euro fell to its lowest level against the US dollar in a good 20 years. In the early morning it only cost $0.9551 at times, but was able to recover a bit afterwards. It currently stands at $0.9633. The last time the European common currency was even lower was in January 2002, immediately after its physical introduction as cash.
The euro has been burdened for months primarily by the energy crisis in Europe. At the beginning of the year, one euro cost around 1.13 dollars. In August, the European currency fell below parity, the 1:1 exchange rate with the dollar, for the first time in 20 years.
Giorgia Meloni and her right-wing party Fratelli d'Italia (FDI) have given the right-wing camp a clear victory in Italy. According to the projections, the FDI received around a quarter of all votes in the parliamentary elections, making it the strongest force. The right-wing alliance of Melonis FDI, the right-wing national Lega and Forza Italia (FI) received a good 43 percent of the votes.
Due to the complicated electoral system, the alliance of Melonis FDI, the Lega of ex-Interior Minister Matteo Salvini and the conservative Forza Italia of longtime Prime Minister Silvio Berlusconi should get an absolute majority of the seats in both houses of parliament - in the House of Representatives and in the Senate. During the election campaign, this right-wing coalition presented enormously expensive proposals to deal with the consequences of the energy crisis and inflation. This includes massive tax cuts - with no explanation of how these are to be financed.
However, Holger Schmieding, chief economist at Berenberg, believes it is unlikely that a government led by Meloni will flout EU rules so much that Italy could head for a debt crisis and endanger the euro. "We have to be prepared for some unrest, for example in relation to migration issues, but we do not expect any major economic, financial or political upheavals," said the chief economist in an initial assessment.
If Meloni were indeed given the mandate to form the new government, the most important question would initially be whether she would appoint a finance minister with solid pro-European credentials.
