Challenges for Italy's new government

Far-right leader Giorgia Meloni has been named Italian prime minister at a particularly difficult time, as soaring inflation and global uncertainty weigh on an already debt-laden economy.

Here are the major challenges facing the leader of the post-fascist Brothers of Italy party and her allies as they prepare to take the helm of the eurozone's third largest economy.

Soaring inflation

Inflation was up 8.9 percent on the year in September, fuelled by rising prices of food (up 11.4 percent) and energy (up 44.5 percent), causing pain for households and businesses alike.

While many countries face similar issues, the pressures are set to send Italy into technical recession next year, alongside Germany, according to the International Monetary Fund.

Meloni takes charge as PM as Italy swings to the right

Outgoing Prime Minister Mario Draghi's government has already pledged 66 billion euros ($65 billion) to help families and businesses with energy prices, using larger-than-expected tax receipts.

Business association Confindustria has called for 40 to 50 billion euros more to stop thousands of companies failing, but if economic growth slows, so will the budgetary room for manoeuvre.

Debt-laden Italy

Matteo Salvini, leader of the far-right League party and one of Meloni's government allies, has been pushing for more spending to help businesses for months.

But Meloni has been at pains to reassure investors she will not blow up the budget in a country long plagued by weak growth and productivity.
Italy has a colossal debt of more than 2.7 trillion euros -- around 150 per cent of its gross domestic product (GDP), the highest ratio in the eurozone after Greece.

Under the guidance of former European Central Bank chief Draghi, the economy has returned to strong growth following the coronavirus-induced slump in 2020.

The government is expecting a public deficit of 5.1 percent of GDP this year, compared to 7.2 percent in 2021, with debt expected to fall to 145.4 percent from 150.3 percent in 2021.

But analysts say the plan of tax cuts and spending promises agreed by Meloni's coalition risks derailing that progress.

Keeping the lights on

Italy has been particularly hard hit by the energy crisis due to its dependence on gas imports.

Before the war in Ukraine, Italy imported 95 percent of the gas it consumes -- about 40 percent of which came from Russia.

This has since dropped to about 10 percent after Draghi took steps to boost gas from other producers, while also accelerating a shift towards renewable energy.

Outgoing energy minister Roberto Cingolani said earlier this month Italy's stocks were full and "we should have a quiet winter season".

But he warned the next government's approval of a regassification plant at Piombino in Tuscany, currently facing local opposition, is vital to maintaining supply.

European reforms

Meloni's party is Eurosceptic, although it has dropped its call for Italy to leave the EU's single currency, and she has promised to stand up for her country's interests more in Brussels.

But Italy's future growth relies on almost 200 billion euros in grants and loans from the EU as part of its post-pandemic recovery fund.
These in turn depend on a series of reforms, from the process of trials to the digitalisation of public administration, that must be implemented by 2026.

Meloni's right-wing coalition has promised to review this plan although it has yet to say how, and funds are already starting to be paid out.
- War in Ukraine

Draghi has been one of the strongest supporters in the EU of sanctions against Moscow and support for Ukraine since the invasion.

Meloni backed this position, even though she was in opposition, and with her allies has vowed to continue backing Ukraine.

However, Salvini has a long history of ties with Moscow and has criticised sanctions as ineffective.

Meanwhile former premier Silvio Berlusconi, whose Forza Italia party is also part of Meloni's coalition, has a personal relationship with Russian President Vladimir Putin going back years.