The new Italian government will face two well-known business problems


Whatever government emerges from the recalcitrant coalition formation after Italy’s national elections, there will be two well-known tests for the business community to check their credentials.

Like a number of its predecessors, the government has yet to settle the future of lender Monte dei Paschi di Siena and ITA, the restructured national airline formerly known as Alitalia.

Both will involve tough policy choices for the government, most likely a coalition led by the far-right Brothers of Italy party, if the latest polls are correct. How she handles a dilemma plaguing a number of Italian governments will signal whether the prospective coalition partners can rein in their economic dirigisme tendencies and resist the temptation to join most of their predecessors in ailing for narrow political reasons companies to interfere.

“Alitalia and MPS were not profitable for decades but were kept alive with public money and politically driven strategies,” said a former government official. “The danger here is that the nationalist right or the populist left will continue to employ these vote-hunting strategies that have only damaged these companies and the country’s standing with investors.”

If the problems were simple, they would have been solved long ago, but jobs and strategic interests are at stake. And ITA and Monte dei Paschi have a special influence on the Italians.

“I’m sorry, Alitalia will do it [rebrand]it’s been like a family all these years, an expensive family, but a family nonetheless,” Prime Minister Mario Draghi said last year as he announced privatization plans for Italy’s chronically loss-making airline.

Chairman Alfredo Altavilla said last year that the new, downsized version of Alitalia would be looking for a deal with a larger airline before the end of 2022 because it is too small to fly on its own wings. Rome has now entered exclusive talks with a consortium of US funds Certares, Delta Air Lines and Air France-KLM to sell the airline despite political opposition in the middle of the election campaign.

According to officials involved in the negotiations, the offer would give Rome two board seats and a crucial role in corporate governance, and would therefore be easier for politicians to digest than a competing offer from Lufthansa. Both bids have valued the deal at just €1bn.

The right-wing nationalist parties have warned that this is not a matter for an interim government. Economic Development Minister Giancarlo Giorgetti, a member of the populist Lega party who was not involved in the talks, said the private equity-led bid was “worrying because of the lack of industrial partners”.

Transport economist Andrea Giuricin added: “The problem with the Certares offer is that AirFrance and Delta Air Lines would not immediately become shareholders and ITA is too small to remain in the market on its own.”

A similarly politically charged economic saga is Monte dei Paschi di Siena, which has cost investors and taxpayers more than €30 billion since the 2008 financial crisis. After scandals and hidden losses, Siena’s largest employer was bailed out by the government in 2013 and nationalized four years later. It is now about to make its seventh cash call in 14 years. She hopes to raise 2.5 billion euros. The Ministry of Finance has promised to contribute at least 1.6 billion euros.

Some politicians fear that privatizing the bank could lead to massive job losses. MP Maurizio Leo, a member of the Brothers of Italy, told Bloomberg this week: “Any decision must safeguard jobs and an asset strategic for Italy’s economy“.

Chief Executive Luigi Lovaglio – a turnaround specialist appointed by Draghi’s government earlier this year – said this week the bank has found an anchor investor to raise capital and has “huge potential”. Despite the difficult economic conditions at the moment, Lovaglio confirmed that the bank’s pre-tax profit is expected to be €700 million in 2024, more than double the 2021 result.

The Italian Finance Ministry has outlined the planned ways for ITA and Monte dei Paschi to avoid clashes with the European Commission over state aid policy for the EU. Reversing them would upset the Commission and investors at a time when the Italian economy needs support. ITA and MPS are to be set on a new, long-term financially viable path that must be neutral for Italian taxpayers. Political compromises on this point could be expensive.

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