Giorgia Meloni of the far-right party Brothers of Italy has been elected as the country’s next prime minister and will lead the most right-leaning Italian government since the Second World War.

As the victory had been widely anticipated, financial markets did not react badly, with the spread between Italian and German government bonds widening only slightly to 237 basis points, while stocks remained stable.

However, Meloni is a Eurosceptic at heart and a strong campaigner against LGBTQ+ rights and immigration. She has already pledged to oppose surrogacy and adoption by gay couples.

Her election comes shortly after the general election in Sweden, which saw post neo-Nazi party Sweden Democrats become the country’s second-largest party, and the strong showing of Marine Le Pen’s far-right National Rally in France’s parliamentary elections.

While Meloni has pledged to carry out former Prime Minister Mario Draghi’s reforms in the framework of the €200bn EU Covid-19 recovery plans, and has steered clear from talking about exiting the euro or the EU, tensions with the bloc are expected.

Ludovico Sapio, an economist at Barclays, told Reuters: “In the medium-term, we expect a centre-right government would bring a looser fiscal stance and a higher risk of frictions with the EU. In [a recent report] we quantify the budgetary impact of measures included in the centre-right manifesto to be about €30–70bn (between 1.5% to 3.9% of Italy’s GDP) including fiscal offsets; however, these will likely be implemented over time.”

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Meanwhile, Fabrizio Botti, senior fellow in economics and finance at Istituto Affari Internazionali, told Investment Monitor: “The victory of the Italian general election by a far-right coalition of parties headed by the Brothers of Italy is a source of apprehension for the actual implementation of Italy’s reform commitments made by Draghi’s government in the framework of the €200bn EU Covid recovery plan.

“Meloni’s proposal to review such a programme in order to respond to the challenges posed by the Russian invasion of Ukraine has so far been interpreted as a threat to Italy’s access to EU funds.”

Will Italy take a protectionist approach towards FDI?

However, Meloni’s government will need access to those funds to deliver the generous welfare programme that it promised during the electoral campaign. For this reason, minor rather than major changes are expected to be implemented. Some of them, however, might have an impact on foreign direct investment (FDI) into Italy.

“The centre-right coalition led by Meloni, which includes Matteo Salvini’s Lega Nord and Silvio Berlusconi’s Forza Italia, will hardly propose major changes to the plan agreed by Draghi with the European Commission,” says Botti.

He believes it is more likely that Meloni’s government will seek to modify minor aspects of the deal with the aim of maintaining access to crucial funds for Italy’s economic and political stability, which would preserve the far-right hardcore supporters’ impression of discontinuity with respect to the preceding ‘technocratic’ administration.

Given the populist agenda on the grounds of which Brothers of Italy was elected, however, an anti-FDI stance could come as a result. Other right-wing populists such as Donald Trump in the US and Jair Bolsonaro in Brazil have raged against globalisation upon gaining power, and there is little to suggest Meloni will veer too far from this approach.

“Divergence with Draghi’s economic agenda may arise via restoring more typical expressions of economic nationalism – i.e. the protection of domestic companies from foreign investment, and the expansion of state control through the National Promotional Bank, Cassa Depositi e Prestiti,” concludes Botti.