FDI screening and the Golden Power of Italy’s new government

As Giorgia Meloni’s right-wing coalition proceeds to form the new Italian government, the triumphant mood powered by its pledges to deliver an “Italy first” economic agenda will subdue as the new administration realises that foreign capital is needed to support the country’s economic recovery. The coalition’s economic protectionism, coupled with Meloni’s outspoken scepticism towards Beijing, is likely to result in increased scrutiny of Chinese investment in Italy but might pave the way for strengthened investment ties with “like-minded” partners.

The winning right-wing coalition, led by Meloni’s party Fratelli d’Italia (FdI), ran a “pro-Italian business” election campaign, pledging to promote “Made in Italy” products and lower taxes for domestic businesses. This push has also translated into a more assertive rhetoric around the need to intensify foreign direct investment (FDI) screening, which Meloni sees as a key tool to defend Italy’s strategic assets from foreign interference. This principle, which is very much rooted in FdI’s broader hostility towards China, might lead to an expansion and re-orientation of the “Golden Power”, a special tool available to governments, which is designed to limit or stop (i) foreign direct investments, and (ii) corporate transactions involving Italian strategic assets. Key areas of focus will be IP-intensive sectors as well as critical infrastructure.

Although the use of the Golden Power might be more heavily deployed by Meloni’s government, it is not unique to its administration nor to Italy, with its use becoming an increasingly common trend across Europe. Previous Italian administrations have revamped FDI screening measures, and the country has witnessed a surge in FDI filings in the past few years, following the expansion of relevant sectors covered by the screening mechanism. A recent application of the Golden Power entailed vetoing the acquisition of a 70% stake in the Italian Lpe S.p.A – a company operating in the field of semiconductors – by the Chinese Shenzhen Investment Holdings Co. Across Europe, Czechia, Denmark, and Slovakia adopted new screening mechanisms within the past year, while six member states (including France, Germany and Italy) expanded existing regimes, and seven initiated consultative or legislative processes to introduce new regimes.

Despite the popularity of such an approach across Europe, experts have raised concerns over the unintended consequences that these types of protectionist measures could have on Italy’s SMEs and R&D capabilities, which are currently underfunded and stagnating. This is particularly true in the context of a challenging environment, whereby a confluence of geopolitical and macroeconomic headwinds is dragging Italy’s economic recovery. The incoming Italian administration is alive to these competing demands. As such, despite its rhetoric, it will likely opt for a less aggressive stance and prioritise the scrutiny of foreign businesses that are perceived as threatening the country's strategic assets (read: Chinese firms), while leaving the door open for “like-minded” partners, and especially US businesses, to invest in Italy. This approach is in line with Meloni’s Sino-scepticism, as well as with her commitment to re-invigorate the transatlantic relationship.

Faced with competing priorities and multiple challenges, from the ongoing cost of living crisis to rising energy prices and heightened geopolitical tensions, Meloni’s government will have to pick its battles. While its protectionist economic agenda represents a challenge for some foreign businesses wanting to invest in Italy, it will also create fresh opportunities for some other, more “aligned” firms.