He highlights that the right-wing parties are behind expensive pension policies, including relaxing retirement requirements and an increase in the minimum pension to €1,000 (£837) per month, potentially a €15bn annual blow. “The large old age dependency ratio and the projected path of pension expenditure for the Italian economy make the two proposals especially challenging for the Italian public finances,” Jari Stehn says. “The worsening of the debt outlook continues to represent the most relevant medium run challenge for the Italian economy.” Draghi was implementing investment and desperately needed reforms to kickstart Italian growth, spanning the economy, competition and justice. The plan is being aided by €200bn of grants and loans handed to the government by the EU’s Recovery Fund. But the EU money is contingent on dozens of reforms, some politically contentious, being passed. Allen-Reynolds at Capital Economics says: “Some of the reforms are already proving to be controversial, and there are over 50 more to be passed by the end of the year. Sustaining reform momentum for several more years could be difficult.” Lega’s Salvini has already hinted at the potential difficulties by publicly supporting a taxi driver strike against new competition rules, which are needed for Italy to access the next tranche of EU aid. ING economist Paolo Pizzoli says the “payoff of obeying” the reforms started in the Draghi government will be high as it unlocks billions of euros to invest. “Yes there is a risk but there is a prize for behaving,” he says. “Unlike in the past, when you had to compare fiscal austerity with almost nothing. Nowadays, you get money in exchange for reforms.” He warns the big risk is “fatigue” by politicians in normalising the public finances after a post-Covid period of “living almost without budget limits”.
