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Week Ahead (26 September)

W/C Monday, 26 September - Italian politics enters a new era, following electoral victory of right-wing alliance led by Meloni

On Sunday, Italy held parliamentary elections, two months after the collapse of the Draghi unity government. According to the exit polls, Giorgia Meloni’s far-right party, Fratelli d’Italia, and her right-wing coalition with fellow anti-immigration right-wing party Lega and Silvio Berlusconi’s centre-right Forza Italia are projected to have won around 44% of the vote. With Fratelli d’Italia having won up to 26% of the vote, its leader Georgia Meloni is poised to head the coalition, becoming Italy’s first female prime minister. The centre-left coalition, led by the Democratic Party (PD) is projected to have won only 26% of the vote, significantly weakened due to the fragmentation of centre-left and centrist parties in three main blocs.

Meloni’s priority will be addressing energy security and the cost-of-living crisis, issues that dominated the agenda ahead of the elections. The right-wing coalition has unveiled a programme containing broad tax cuts on energy and other essential items, a flat tax for the self-employed, further allowances to families, and generous minimum pension increases, that could further burden the national budget by €80 billion.

Although Meloni warned the EU last week that, if she gets elected, the ‘’fun is over’’, there are signs that she may opt for a more pragmatic approach. She has insisted that Draghi’s recovery plan could be further improved ‘’to foster investments and growth’’, rather than rejecting it. She is also understood to be considering installing a non-political technocrat as minister of finance, with ECB Executive Board Member Fabio Panetta understood to be top of her wishlist. The presence of technocrats similar to Panetta in a Meloni-led government would be welcomed by investors, European political leaders, officials in Brussels and indeed President Mattarella, who in 2018 refused to accept the nomination for finance minister of Paolo Savona, who had called Italy’s entry into the euro a “historic mistake”.

Assuming a right-wing coalition takes office, its long-term viability is far from secured. Despite his ideological affinity with Fratelli d’Italia, Mateo Salvini has his own agenda and could look for ways to overshadow the more popular Meloni. Lega secured only ~9% of the vote, meaning that the party is no longer the leading party even in Northern Italy – a disastrous result. Fiscal discipline and his criticism of the social and economic cost of EU sanctions on Russia could offer him the opportunity to differentiate himself in the coming months, in his quest to compensate for his party’s fall from grace since 2018.

Monday, 26 September- European Parliament to hold structured dialogue on taxation with Commissioner Gentiloni, and monetary dialogue with ECB’s Christine Lagarde

Today, the members of the European Parliament’s Economic and Monetary Affairs Committee (ECON) will meet with the Commissioner for Economy, Paolo Gentiloni, to hold a structured dialogue on the Commission’s ongoing and upcoming priorities in the area of taxation.

More specifically, today’s agenda includes the EU implementation of the OECD’s Pillar 1 and Pillar 2 tax reform. Other issues expected to be discussed are the revision of the directive on the exchange of tax information (DAC8), an initiative to address the role of tax enablers (SAFE), and an initiative in the field of VAT in the digital age.

Also today, ECON members will meet with the ECB President Christine Lagarde to hold the Third Monetary dialogue of the year, the first one since ECB’s governing council decided to raise interest rates twice for the first time since 2011. The dialogue will focus on the assessment of the ECB’s current monetary stance and the recently proposed anti-fragmentation tool, the Transmission Protection Instrument.

Tuesday, 27 September – Irish government to unveil budget for 2023

On Tuesday, the Irish government is scheduled to unveil next year’s budget, focusing on tackling the cost-of-living crisis, largely due to soaring energy bills. Some uncertainty remains on how the government intends to support businesses as a state aid scheme, approved by the European Commission in August, continues to be the subject of negotiations between officials in several departments. The price tag is expected to reach around €6.7 billion, with the €3 billion allocated for the cost-of-living package, a figure far larger than the originally expected €1 billion.

Friday, 30 September - The Extraordinary Transport, Telecommunications, and Energy Council to be held in Brussels, to discuss Commission’s package of measures to tackle energy prices

On Friday, an extraordinary Transport, Telecommunications and Energy Council between energy ministers will take place in Brussels to discuss the European Commission’s package of measures to tackle the high energy prices across the bloc.

Earlier this month, von der Leyen outlined five immediate measures to help the bloc deal with the energy crisis. These include mandatory measures to reduce electricity demand, a windfall tax on excessive energy profits made by renewables and nuclear energy due to the price of electricity, a solidarity tax on fossil fuel companies making excessive profits, a state aid programme to inject extra liquidity to struggling utility companies and setting a price cap on Russian gas imports. The addition of capping Russian gas imports seems to take stock of Gazprom’s recent indefinite extension of the shutdown of gas flows to Europe through its Nord Stream 1 pipeline.

Capping the price of Russian gas and imposing mandatory energy savings remain the most divisive measures among member states, as certain Central European countries like Hungary and Slovakia are concerned about the possibility of a Russian retaliatory total shutdown of gas flows. Furthermore, the option of mandatory ‘’smart savings’’ has also prompted reactions.

However, unlike gas, the option of a prices cap on Russian oil is gaining momentum in the last days, following President Putin’s recent announcement of a ‘’partial mobilisation’’ of troops and could feature in the Commission’s new package of sanctions. Meanwhile, decoupling of gas and electricity prices remains off the table for the European Commission as a more radical option, despite the strong backing of certain member states.

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