Meloni's Endgame: Tackling Italy's Stagnant Economy and Politics

Ukadike Micheal

Data Interpretation

Economic

Political

Summary:

Italy's Meloni, a global force, tackles domestic stagnation and political reform to secure her legacy.

Giorgia Meloni has built a political career on defying expectations. After establishing herself as a major force in Europe, Italy's first female prime minister is now confronting the two domestic challenges that could define her legacy: stagnant living standards and a political system prone to gridlock.

A victory on either front would likely secure the right-wing leader a second term, potentially making her Italy's longest-serving postwar leader. Success on both could permanently reshape the country's power structure.

This scenario was hard to imagine in 2022 when Meloni, then a new premier, inherited a post-pandemic economy heavily reliant on EU financial support. Since then, she has outmaneuvered her main domestic rival, gained the confidence of investors, and amplified Italy's influence on global issues from Ukraine to the Mercosur trade agreement. Her stability stands in stark contrast to the political and economic struggles facing Europe's traditional power centers in Berlin and Paris.

"Meloni's foreign policy posture is as rooted in Italy's long instinct for caution as it is forged by constraint, with her coalition split on issues including the EU and Ukraine," notes Beniamino Irdi, head of Milan-based consultancy Highground and a former government official. "Like a judoka, she has so far turned those limits into a reputation for balance and strategic sobriety. Paired with rare domestic stability, that has made Rome a credible interlocutor for many."

While international affairs may dominate headlines, it is her deep-rooted domestic challenges that will ultimately determine her political future.

Confronting Decades of Economic Stagnation

After implementing several restrained budgets, Meloni's government is now considering more significant fiscal measures, including deeper tax cuts, to stimulate the economy. The urgency is clear: according to the World Bank, Italy's gross domestic product per capita was lower in 2024 than it was in 2008.

The economic strain is putting immense pressure on Italian households. A December report from the Censis research institute found that the average Italian family has become 8.5% poorer over the past 15 years. This decline has disproportionately affected lower and middle-class families, widening the nation's wealth gap. The situation is set to become more challenging as a €190 billion ($222 billion) EU Covid-era recovery fund is scheduled to run out this year.

Rewriting the Rules of Italian Politics

To address the economic uncertainty, Meloni's coalition is simultaneously pursuing a strategy to overhaul the country's political framework. Following defeats in regional elections in 2025, her alliance has developed plans to increase its ability to stay in and effectively wield power. They see the upper house of Parliament as a major obstacle, where current laws could deny her an outright majority if the opposition unites against her.

The Referendum Gambit

As a first step, the government is considering fast-tracking a referendum on judicial reforms. According to sources familiar with the plan, the idea is to hold the vote as soon as possible to capitalize on current public sentiment and build momentum ahead of the election year. However, President Sergio Mattarella has reportedly advised against this move. Both Meloni's and Mattarella's offices declined to comment.

The risks are high. "Meloni's subsequent steps will depend on that first outcome," says Cristina Fasone, a law professor at Luiss University in Rome. "With referendums, anything can happen." The warning is clear: former Prime Minister Matteo Renzi famously lost his premiership after a failed constitutional referendum he championed.

Reforming the Prime Minister's Office

Another major proposal involves changing the process for electing the prime minister. Currently, the president appoints a candidate to form a government after parliamentary elections. A bill introduced in 2024 to reform this system has stalled amid intense criticism from the opposition, who argue it would destroy the checks and balances enshrined in Italy's post-fascist constitution.

According to Fasone, the coalition's immediate priority will be driven by consensus. "The majority's current main objective is to eliminate the chance of the opposition winning in the single-member constituencies of the south at the 2027 elections," she said.

Meloni's Pitch to Voters

Despite the domestic hurdles, Meloni continues to leverage her track record. Italy's financial risk profile has improved significantly, with the spread between Italian and German 10-year bond yields—a key market indicator—falling to its lowest point since 2009.

"The mantra was headlines along the lines of: Europe is shaking, Meloni threatens European stability," she recalled at a party event last month. "Three years have passed and the mood has changed quite a bit."

The opposition has struggled to capitalize on her vulnerabilities, though approval ratings for Meloni and her government have dipped since 2022. While she has faced criticism for centralizing power, her international role continues to grow. Italy played a decisive part in votes on the EU-Latin America trade deal and a plan to issue joint debt to support Ukraine. Since early 2025, she has also navigated a careful relationship with Donald Trump while managing tensions within her own coalition over aid to Kyiv.

Ultimately, Meloni is fusing the economic and political arguments into a single, powerful message for voters. Citing her government's stability, she argued that political chaos has come at a steep price. "In 10 years, that's cost €265 billion – the equivalent of an entire budget law every year," she said. "That's how much Italians have paid out of their own pocket for the left's palace intrigues."

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James Whitman

Political

President Donald Trump's administration said on Thursday it was creating a new division at the U.S. Department of Justice to combat what the White House called "rampant" fraud across the country.

Rights advocates and critics have said the Trump administration has used fraud allegations as an excuse to target immigrants and political opponents. They have also dismissed Trump's ability to tackle fraud, citing pardons from Trump to those who have faced fraud convictions in the past.

"To combat the rampant and pervasive problem of fraud in the United States, the DOJ's new division for national fraud enforcement will enforce the federal criminal and civil laws against fraud targeting federal government programs, federally funded benefits, businesses, nonprofits and private citizens nationwide," the White House said in a statement.

In recent weeks, the Trump administration has singled out Minnesota, alleging rampant fraud is being committed by immigrants in the welfare system and social-service programs.

Trump administration officials have frequently and sharply attacked the state's Somali community, the largest in the country. Rights and immigration advocates say Trump has exaggerated isolated examples and used those to engage in what they called federal overreach.

The assistant attorney general for the new Justice Department division will be responsible for leading the department's efforts to investigate, prosecute and remedy fraud affecting the federal government, federally funded programs and private citizens, the White House said.

The White House said the official will advise the U.S. attorney general and deputy attorney general "on issues involving significant, high-impact fraud investigations and prosecutions and related policy matters."

Earlier this week, the Trump administration said it would freeze more than $10 billion in federal childcare and family assistance funds to California, Colorado, Illinois, Minnesota and New York, citing what the administration called fraud concerns. The states later sued the Trump administration.

The administration has threatened federal funding cuts to organizations and states over a number of issues ranging from alleged fraud in programs in states governed by Democrats to diversity initiatives and pro-Palestinian university protests against U.S. ally Israel's assault on Gaza.

Source: Reuters

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Henry Thompson

Economic

Remarks of Officials

Central Bank

Political

Data Interpretation

The upcoming U.S. jobs report is expected to show hiring cooled in December, as businesses remain cautious about expanding their workforce amid ongoing import tariffs and rising investment in artificial intelligence.

Economists forecast that nonfarm payrolls grew by just 60,000, while the unemployment rate is anticipated to have dipped slightly to 4.5%. This data could reinforce the Federal Reserve's decision to keep interest rates unchanged this month.

The "No Hire, No Fire" Labor Market

The Labor Department's report is likely to confirm that the economy is in a "jobless expansion," a state where economic growth and worker productivity outpace hiring. This trend, which saw a surge in the third quarter partly due to an AI spending boom, has left the labor market in what many analysts call a "no hire, no fire" mode.

"It's not so much weak demand because the economy seems to be doing not bad, but businesses are very cautious about taking on new workers," said Sal Guatieri, a senior economist at BMO Capital Markets. He attributes this hesitation to a desire to control costs in the face of tariffs and a belief in the future productivity gains from AI-driven automation.

Payroll Forecasts vs. Economic Needs

A Reuters survey of economists projects that nonfarm payrolls increased by 60,000 last month, following a 64,000 rebound in November. This is a significant drop from the 105,000 jobs lost in October, a decline largely driven by federal government buyouts.

To keep pace with population growth, economists estimate the economy needs to add between 50,000 and 120,000 jobs each month.

The labor market lost significant momentum last year, adding well below one million jobs, compared to the roughly 2 million created in 2024. This figure may be revised even lower next month when the Bureau of Labor Statistics (BLS) publishes its payrolls benchmark revision. The BLS has already estimated that about 911,000 fewer jobs were created in the 12 months through March than initially reported, citing issues with its birth-death model for estimating business openings and closings.

Starting in January, the BLS plans to change its model to incorporate more current sample information each month.

Tariffs and Labor Supply Weigh on Job Creation

The sharp slowdown in job growth has been widely blamed on President Donald Trump's aggressive trade and immigration policies, which analysts say have reduced both the demand for and supply of workers.

"There has been continuous uncertainty over tariffs," noted Dan North, senior economist at Allianz Trade North America. "We also have a falling supply of labor since the foreign-born labor is shrinking fairly rapidly."

The government also plans to release five years of revised household survey data alongside the December report. However, annual population control adjustments, usually incorporated in January, will be delayed.

Unemployment Rate: The Fed's Key Signal

While the median forecast for the unemployment rate is 4.5%, down from a four-year high of 4.6% in November, some analysts see it ticking up to 4.7%. Such a move, they argue, could pressure the Federal Reserve to cut interest rates.

"A 4.7% unemployment rate in December would not only confirm that November was relatively free of shutdown-related measurement issues, but that downside risks to the labor market have increased even more since the Fed's December meeting," said Veronica Clark, an economist at Citigroup.

In December, the U.S. central bank cut its benchmark interest rate to a range of 3.50%-3.75% but signaled a pause to assess the economy's direction.

Can Rate Cuts Solve Structural Hiring Problems?

Even if the Fed acts, some economists believe monetary policy has its limits against the current challenges. Job growth has become narrowly concentrated in sectors like healthcare and social assistance, suggesting the problems are more structural than cyclical.

"Lowering interest rates may help to buoy the economy at the margin, but it is unlikely to push companies that are on temporary hold as it relates to hiring decisions due to tariff-related uncertainty to add workers," explained Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets. "The Fed is certainly powerless to counteract the concerns related to AI."

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Gerik

Economic

Regulatory Pressure Targets Polysilicon Giants

China’s solar industry, long considered a cornerstone of its green energy ambitions, is facing intensified scrutiny from domestic regulators. The State Administration for Market Regulation (SAMR) summoned six major polysilicon producers including Tongwei Co. and GCL Technology Holdings alongside the China Photovoltaic Industry Association, to address concerns over anti-competitive practices. The companies were cautioned against collusion on pricing, output, and sales coordination.

This intervention emerges in the wake of recent efforts by leading producers to consolidate the oversupplied polysilicon sector by launching a fund aimed at purchasing outdated capacity from smaller firms. While this initiative was originally welcomed as a remedy for the sector’s chronic supply glut, it also sparked sharp mid-year price hikes, prompting the regulator’s current warnings.

Consolidation Plan Faces Structural Challenges

The regulator’s meeting is now being interpreted as a direct rebuke of the aggressive consolidation blueprint. Analysts at BofA Global Research have expressed skepticism toward the initiative, noting that the fund’s potential to distort market competition appears excessive. Rather than delivering stability, the consolidation may be contributing to unsustainable pricing behavior and exacerbating losses elsewhere in the solar supply chain.

This concern is reflected in market reactions. Shares in Tongwei dropped over 3% in Shanghai, while GCL fell by more than 4% in Hong Kong following news of the regulatory warning. The swift decline suggests investor uncertainty over the long-term viability of the consolidation approach and mounting pressure for a more balanced restructuring strategy.

Imbalance in Solar Supply Chain Raises Red Flags

Recent data from the China Silicon Industry Association underscores the volatility affecting upstream materials. Polysilicon prices surged between 9.8% and 10.5% during the past week alone, while wafer prices also climbed by 8.4% to 9.2%. Yet these increases contrast sharply with falling production figures: polysilicon output in December fell to 1.32 million tons, down 28% year-on-year, and wafer production dropped to 47.7 gigawatts, down 14.2% month-on-month.

This pattern reveals a growing misalignment between supply and demand across the supply chain. While rising polysilicon costs suggest temporary pricing power among upstream firms, the lack of recovery in downstream component prices such as cells and modules has raised concerns about the sustainability of this model. Without coordinated recovery across all tiers of the value chain, profitability risks becoming overly concentrated and unstable.

Strategic Shifts: Diversification and De-subsidization

In response to cost pressures, solar companies are exploring innovations to reduce reliance on expensive inputs. Longi Green Energy Technology, for example, announced plans to substitute silver a costly component in its solar cells with more affordable base metals. Meanwhile, Jinko Solar reported a 20.56-megawatt module order from Australia, signaling continued international demand despite internal restructuring.

Over the longer term, industry analysts expect China’s solar sector to undergo broader reforms that include a redistribution of profit margins across the supply chain, tighter industry standards, and a gradual phase-out of supportive policies such as export tax rebates. These changes may reduce volatility but also raise entry barriers for smaller or less efficient players.

Causal and Correlational Dynamics at Play

The price surge in polysilicon is causally linked to supply constraints and consolidation plans, particularly the fund that incentivized capacity buyouts. However, the broader rise in wafer and cell prices is more correlational, supported by slight output reductions and cost pass-throughs rather than genuine demand growth. The regulatory response, while reactive, also reflects a strategic intent to prevent monopolistic control over critical inputs at a time when China is repositioning itself as a global clean energy leader.

The solar sector’s current correction phase reveals the limits of uncoordinated consolidation in resolving overcapacity. While the ambition to stabilize prices is valid, the risk of overconcentration and price manipulation has triggered regulatory pushback. Going forward, the industry will need to navigate a more complex terrain balancing innovation, regulatory compliance, and profitability while avoiding the pitfalls of monopolistic behavior that could undermine global confidence in China's clean energy leadership.

Source: Bloomberg

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James Riley

Remarks of Officials

Economic

Commodity

Political

Japan is launching a diplomatic blitz to counter China's growing leverage over critical resources, engaging with G7 nations and key regional partners. The move comes amid rising concerns that Beijing is weaponizing its control over the global rare earths market as a trade dispute between the two economic giants escalates.

A Diplomatic Push to Secure Alliances

Top Japanese officials are embarking on a series of high-level talks to build a united front. Finance Minister Satsuki Katayama is set to meet with her counterparts from other major industrialized democracies during a trip to the US, with critical minerals at the top of the agenda.

"The fundamental consensus among the G-7 nations is that it is unacceptable for countries to secure monopolies through non-market means," Katayama stated, highlighting that China's actions represent a crisis for the global economy and a serious economic security challenge.

Simultaneously, Defense Minister Shinjiro Koizumi is scheduled for discussions with his US counterpart. At home, Prime Minister Sanae Takaichi will host South Korea's Lee Jae Myung for a summit aimed at reaffirming the alliance between the two key US allies.

The Heart of the Dispute: Rare Earths and Trade

Tensions have been mounting since early November, when comments from Takaichi suggested Japan could use its military if China attempts to seize Taiwan by force. In response, Beijing has rolled out new export restrictions and initiated an anti-dumping investigation into a key chip-making material, prompting Japan to shore up support from its allies.

Japanese Chief Cabinet Secretary Minoru Kihara has publicly called for the smooth shipment of rare earths and food, responding to reports that Beijing is obstructing trade in these goods.

"I believe international trade in rare earths should proceed smoothly, and I consider this to be extremely important," Kihara said. "China's export control measures on rare earths and other materials have been ongoing for some time and are having a serious impact on the global supply chain."

A report from the Wall Street Journal, citing two Chinese exporters, indicated that China has already begun to restrict exports of rare earths and rare-earth magnets to Japan. However, a person familiar with the matter noted that a Japanese importer had not been notified of any halt in export procedures as of Friday afternoon. Finance Minister Katayama confirmed she would verify transaction details with Japan's customs authorities.

China's Broader Economic Pressure

Beijing's actions extend beyond rare earths. This week, China announced new export controls on dual-use items that could potentially enhance Japan's military capabilities. It also launched an anti-dumping probe into Japan's production of dichlorosilane, a crucial material used in semiconductor manufacturing.

Adding to the friction, Japan has lodged a protest against China's deployment of a mobile drilling vessel in the East China Sea.

Assessing the Impact and Path Forward

According to Japan's Trade Minister Ryosei Akazawa, it is difficult to assess the full impact of the new curbs on dual-use items, as their exact content remains unclear. He noted that China's rare earth restrictions, in place since April of last year, have already forced various Japanese industries to adjust production.

"We are currently scrutinizing the impact on Japan's economy," Akazawa said. "We intend to take necessary measures in a resolute and calm manner, after comprehensively considering the situation from various perspectives."

Japan's diplomatic calendar remains busy, with Takaichi's meetings with South Korea's Lee scheduled for Tuesday and Wednesday, followed by a visit from Italian Prime Minister Giorgia Meloni from January 15-17.

"The importance of Japan-South Korea relations and Japan-South Korea-US cooperation has increased significantly," Kihara emphasized, highlighting the plan for close communication and shuttle diplomacy to ensure stable relations.

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Gerik

Economic

Geopolitical Escalation: From Buying Greenland to Mining It

President Donald Trump’s polar interest has transitioned from speculation to statecraft. His administration is in direct talks with Amaroq, a mining firm operating in Greenland, to explore joint investment in critical resources like gold, gallium, and rare minerals. While Greenland’s leadership has cautiously welcomed economic cooperation, they have drawn a clear line: Greenland is not for sale. As MP Aaja Chemnitz asserted, economic collaboration is possible, but sovereignty is non-negotiable.

This declaration comes just days before a high-stakes diplomatic meeting between U.S. Secretary of State Marco Rubio and Danish/Greenlandic officials, including Foreign Ministers Lokke Rasmussen and Vivian Motzfeldt. Though initiated by Denmark, Rubio is reportedly using the meeting to formally raise the idea of a Greenland acquisition, reviving the Trump administration’s long-standing ambition.

$2.8 Trillion and a New Cold Front?

A U.S. think tank has provocatively pegged Greenland’s "value" at nearly $2.8 trillion, though this estimate is speculative and lacks legal or economic consensus. Yet even discussing such a valuation sends powerful signals globally. It invites comparisons to Cold War-style land grabs, prompting European skepticism and drawing quiet yet keen observation from strategic competitors like Russia and China.

China, which declared itself a "near-Arctic state" in 2018, views Arctic access as vital to its long-term geopolitical strategy. Any U.S. military or resource foothold in Greenland could be seen as an encroachment, triggering countermoves and elevating tensions in an already fragmented global order.

U.S. Senate Pushes Back on Military Overreach

Amid the Greenland developments, the U.S. Senate passed a War Powers Resolution aimed at limiting further military strikes in Venezuela. This bipartisan move would require Trump to seek Congressional authorization before engaging in any future military action, signaling growing resistance to unchecked executive power in foreign affairs. This could indirectly constrain similar military maneuvering related to Arctic positioning.

Investor behavior reflects the geopolitical undercurrents. On Thursday, the Dow Jones Industrial Average rose by 0.55%, while the Nasdaq slid by 0.44%, indicating a rotation out of tech and into defensive stocks. In Europe, the Stoxx 600 fell slightly by 0.19%. Meanwhile, U.S. and global defense equities rallied, boosted by Trump’s proposal for a massive $1.5 trillion defense budget amid growing strategic uncertainties.

CLSA, a major investment bank, released its list of favored defensive and countercyclical stocks, citing concerns over "AI trade exhaustion" and macroeconomic instability. The shift suggests institutional investors are bracing for a volatile year, driven by policy risks and potential military escalations.

Tariff Legality Under Review: $150 Billion in Reimbursements?

The economic implications of Trump’s global moves may face a sharp legal test on Friday. The U.S. Supreme Court is expected to rule on whether the Trump administration’s use of the International Emergency Economic Powers Act (IEEPA) to levy tariffs was lawful.

If the court rules against the administration, it could force the U.S. Treasury to reimburse importers, potentially returning over $150 billion in previously collected duties. This would blow a hole in fiscal projections that underpin Trump’s expanded military and foreign policy agendas including potential Arctic operations. The decision could also set a new precedent on executive authority in trade.

What was once dismissed as an outlandish Trump soundbite is rapidly becoming a strategic flashpoint. As the U.S. engages with Greenland not just for resources but for control, the world watches closely. The intersection of resource politics, Arctic militarization, and sovereignty claims now defines one of the most surprising geopolitical stories of 2026. Combined with legal challenges on tariffs and military authority, the Trump administration is facing pressure on multiple fronts and the next few days could determine whether the Arctic becomes a new zone of cooperation or confrontation.

Source: CNBC

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Gerik

Political

Venezuelan Oil Now Under U.S. Control, But Not Entirely

President Donald Trump’s declaration of control over Venezuelan oil fields faces a critical reality: a significant portion of those reserves are contractually linked to China. For years, Caracas relied on oil-for-loan arrangements with Beijing to keep its economy afloat. With Nicolás Maduro now removed from power, the legitimacy of these deals faces renewed scrutiny, especially as the U.S. has begun redirecting Venezuela’s oil flows through its own sanctioned channels.

The Trump administration has seized Venezuelan oil tankers and is initiating the sale of 30 to 50 million barrels from local storage, with profits to be returned to the Venezuelan people via U.S.-controlled accounts. This maneuver positions Washington not just as a political force, but as the de facto manager of Venezuela’s most critical export commodity.

U.S. Leverage vs. Chinese Exposure

China’s financial exposure in Venezuela is immense. Estimates place outstanding debts at a minimum of $10 billion, though the number could be higher due to delayed repayments caused by U.S. sanctions. The oil-backed loan structure has bound China’s interests to Venezuelan output, making current U.S. interference both financially disruptive and politically provocative.

According to Morgan Stanley, Chinese state-owned enterprises namely Sinopec and CNPC hold rights to over 4.4 billion barrels of Venezuelan reserves, more than any other foreign nation. These holdings are now in a precarious state as the new U.S.-aligned interim government may seek to void contracts previously negotiated under Maduro, thereby threatening China’s repayment pathway.

Strategic Balance Ahead of Trump-Xi Meeting

Despite these tensions, Washington seems cautious about provoking a wider dispute with Beijing. Trump is expected to visit China in April to reinforce a trade truce secured with Xi Jinping in late 2025. Analysts suggest that turning Venezuela into a geopolitical fault line would be counterproductive to this diplomatic effort.

Craig Singleton from the Foundation for Defense of Democracies emphasizes that the White House aims to retain leverage without escalating friction unnecessarily. Trump’s broader strategy appears to isolate adversarial influences in the Western Hemisphere while preserving space for economic cooperation with China.

Beijing’s Stakes Extend Beyond Oil

China’s investment footprint in Venezuela is not limited to petroleum. Over the past two decades, Chinese firms have also built infrastructure projects such as railways, ports, and telecommunications. These ventures part of broader strategic partnerships are now vulnerable to collapse if the U.S.-backed transitional government chooses to review or cancel contracts signed during the Maduro era.

Historical precedent casts a long shadow. The downfall of Libya’s Muammar Gaddafi saw billions in Chinese investments evaporate overnight. A similar scenario looms in Caracas, and Chinese academics like Cui Shoujun have already expressed concern that Maduro’s deals could be declared illegal under the new regime.

Beijing’s Diplomatic Response and Limitations

In response to Maduro’s capture, China issued a strongly worded condemnation, calling the U.S. actions a violation of Venezuelan sovereignty and international norms. Beijing demanded the release of Maduro and reiterated its commitment to continuing economic ties with Venezuela regardless of the political transition.

Nonetheless, China’s influence in the Western Hemisphere remains limited. While Venezuela is the only Latin American country to share a top-tier strategic partnership with Beijing, China lacks the capability to safeguard its interests when faced with direct U.S. intervention. As Singleton noted, diplomatic protests alone offer little protection when Washington acts unilaterally.

The evolving situation reveals a web of intertwined interests: U.S. ambition to reassert influence in Latin America, China’s sunk costs and exposure, and Venezuela’s uncertain political future. Whether Trump can manage Beijing’s economic entanglements without derailing the fragile trade détente remains to be seen. What is certain is that Venezuela has once again become a litmus test for great-power competition and oil remains the currency of power.