The Meloni Government’s Draft Budgetary Law – based on the Update of the Economic and Finance Document (Nadef) - indicates economic policy objectives and programs whose credibility is burdened by severe constraints. The complex conditions of the international economy and the intrinsic weakness of Italian public finances may call into question the commitments made by the government, create disquiet among investors and jeopardize Italy’s financial stability.

Moreover, the presentation of the Draft Budgetary Law (DBL) is taking place during the final phase of negotiations between the EU countries on the reform of the European Stability and Growth Pact, which will return into force starting from January 1, 2024. The policy orientations expressed by the Italian government with the Nadef and the DBL may prove detrimental to Italy’s position during the negotiations and  influence the conclusions of the debate underway in the European Council.

In this analysis document, I try to highlight some of the consequences of the lack of realism observed in the government's economic policies, policies that derive from the developments emerging from the economic situation and from the monetary policy framework. The choices adopted by the budgetary policies written in the government documents will be analyzed also considering the internal and external political positioning choices of the Italian government. The aim of this paper is to identify the consequences of Italy’s fiscal choices in the context of the European negotiations on the reform of the economic governance rules. It is not possible to know the final outcome of those negotiations, consequently I will consider only the impact of Italy’s fiscal position, as it results from the new government’s documents, on the negotiation itself. I will however consider the possibility that financial instability, which may affect Italy’s public debt, may erupt during the negotiations. In that case, Italy might be forced to swiftly raise all its possible defensive barriers: ratifying the ESM Treaty and revising the fiscal commitments of the Draft Budgetary Law. The conclusions of the paper suggest that these extreme defense mechanisms should be raised before a crisis erupts.

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