Nervöse Finanzmärkte und hohe Schulden: Wie viel Wahlkampf kann sich Meloni leisten?

As the 2027 Italian election approaches, pressure mounts to relieve citizens from taxes, but rising yields push up borrowing costs. Giorgia Meloni's final budget is a trial of her fiscal discipline. Her commitment to ending the 2019 viral video campaign against high fuel taxes remains steadfast. Giorgia Meloni's government is now faced with a dilemma as the election draws near.

The temptation is great to offer citizens something before the vote, such as lower taxes, earlier retirement, and relief from energy costs. However, in the final budget year before the election, Meloni must balance campaign interests with government responsibility. This delicate balance is becoming increasingly difficult. While her coalition partners Lega and Forza Italia showcase their wish lists, the financial markets are becoming more nervous.

Giancarlo Giorgetti, Italy's Finance Minister, is left to balance the interests of a coalition that has been difficult to reconcile. Giorgetti presented the framework for next year's financial planning to the Chamber of Deputies, where only 12 out of 400 parliamentarians showed up. His message was grim: "Dark clouds are gathering on the horizon," he warned.

The signals are clear: Italy's 10-year government bonds yields have climbed to 4.6% this week, the highest since November 2023. The risk premium it must pay for its debt has also increased, with the yield spread against German bonds again surpassing one percentage point. Meloni had celebrated the decline in the spread, which temporarily stood at 0.6 percentage points, as one of her biggest government successes.

However, the reasons for the strained situation today are different from 2011 when Italy's debt crisis brought it to the center of the Euro crisis. Today, geopolitical tensions, new energy price shocks, and doubts about the sustainability of highly indebted states are driving up financing costs on international bond markets. France is particularly under pressure.

But the swing in sentiment is also hitting Italy. Italy's national debt reached 3.2 trillion euros in July, or 138.6% of gross domestic product. With such a high debt burden, even a rise in interest rates hits hard. The consequences are already felt in the budget. For 2027, Giorgetti now expects interest payments of 104 billion euros, 4 billion more than expected in spring and 16.5 billion more than two years ago.

This means Italy must spend around 4.3% of its economic output on debt servicing in 2027. The financial room for campaign promises is shrinking just when Meloni needs it most. Her re-election is not out of the question. Meloni's dilemma is political in nature. She must prove that the citizens' economic situation is improving before the vote.

So far, many have experienced the opposite. Inflation rose to 4.2% in September, the highest since 2023. Over the past five years, purchasing power has fallen by more than nine percent. Low incomes make it difficult for many Italian families to keep up with rising living costs. Italy's growth has fallen below the European average, and productivity has stagnated at very low levels.

Yet Italy has received 209 billion euros from the EU aid fund over the past years to boost its competitiveness. Meloni is particularly embarrassed by the fact that the already high tax rate has climbed to 43.5%, a historic high. As a political record, that is hardly commendable. Giorgetti's concerns also drive him. He must prevent additional expenses from shaking investor confidence and making borrowing more expensive.

His message to an empty seat in the Chamber of Deputies was: "In a stormy sea, first secure the ship." Whether the government will stick to this when it brings the final budget draft to Parliament at the end of October remains to be seen. While the markets do not decide Meloni's election program, they determine how expensive it will be if she tries to deliver on her promises.