What could Italian elections mean for bonds, euro and banks?

The general election in Italy could add some more trouble to Europe’s heap of existing troubles including the war in the east, the hot inflation and the looming energy crisis.

Forecasts indicate that power in Italy could be driven to the far-right coalition led by Giorgia Meloni from “the Brothers of Italy”, a party with fascist roots, populist fiscal policy and a deep euro-skepticism.

So, Italy’s next government could cut sales taxes on certain goods to alleviate the cost of living crisis, and there are several comments by the coalition referring to Italy’s intention to renegotiate its Covid recovery funds with the European Union.

If Giorgia Meloni and her alliance win next Sunday’s election, they will not need to wait long for a picture of just how far the country’s economic outlook has soured.

Officials are busy preparing new forecasts for growth, debt and the deficit as part of a shortened budget that must be published within days of the vote by the outgoing government of Prime Minister Mario Draghi.

Italy’s vote could also mark a big political shift for an essential European Union member state dealing with ongoing economic and political instability.

The vote follows the resignation by Prime Minister Mario Draghi in July, after he failed to unite a fractious political coalition behind his economic policies.