Can Italy Establish an East-West Balance?

Meloni has started to pursue a very active political agenda. She is not only contributing to filling the leadership void in Europe post-Merkel but also reshaping Italy’s image. Initially, it seemed she was struggling, but now it appears she is reinterpreting Italy’s interests through a new paradigm. There's a Turkish saying, "The head that wears the crown becomes wiser," which fits this situation.

In 2019, Italy joined the Belt and Road Initiative (Silk Road). At the time, as the first and only G7 country to join, this decision shocked the Western bloc. Italy aimed to attract investment and increase its exports to China through this agreement, but the results were not as expected.

During the COVID-19 pandemic, and with recent positions on Ukraine and Gaza, Italy seemed to lose direction, diminishing the symbolic importance of the agreement. The lack of direct foreign investments from China and the failure to increase exports as anticipated turned the agreement into a domestic political issue. During her campaign, Meloni promised to withdraw from this agreement as a significant protectionist measure.

Ultimately, Meloni kept her promise. Last December, she announced Italy would not renew the five-year memorandum of understanding for the Belt and Road Initiative. However, within eight months, things changed. The same BYD, which had decided to invest in Hungary, also decided to invest in Türkiye after the G-7 meeting hosted by Italy concluded.

Meloni went on a five-day visit to China to rebuild these geopolitical connections. During this visit, Italy and China signed a three-year action plan focusing on energy technologies, electric vehicles, and space, signaling an effort to enhance economic cooperation.

This visit, occurring before the U.S. elections, highlighted the reshaping of geoeconomic relations globally. Macron had previously aimed for a similar impact but failed. This agreement suggests that France, often discussed in this column for being targeted in contexts like the Suez and other areas, is a loser in this deal. France’s attempts to rely on IMEC (India-Arab-Mediterranean Corridor) after the Gaza conflict were also unsuccessful. France's failure to build good relations with Türkiye and understand the value of relations with the Organization of Turkic States reflects its declining fortunes.

While the U.S. disrupts global trade, it overlooks the emergence of the global South through agreements like RCEP (Regional Comprehensive Economic Partnership). Meloni, initially opposed to Italy-China relations, is now rebuilding them, possibly correcting her previous approach to favor Italy more.

The key issue is whether Italy can build an East-West balance starting from the Caucasus, including Türkiye, the Balkans, Eastern Europe, and Italy, while involving France. If this new action plan with China brings Italy closer to Türkiye, Hungary, Albania, and the Organization of Turkic States, it means Italy is positioning itself effectively in the East-West balance. If not, the plan will result in disappointment for Italians in three years.

**Is Everyone Dilan Polat?**

Recently, tax-free certificates are flying around, and social media has turned into a court for the tax judgments of big businesses. It seems everyone is being treated like Dilan Polat.

The economic management's approach appears to be influenced by these social media discussions. The primary issue lies in the design of tax collection strategies. In Türkiye, corporate tax exemptions and deductions are applied in a very broad range, making the framework disorganized.

Some countries prefer a refund method over deductions. Companies first pay their taxes and then apply for refunds based on their qualifying deductions, which simplifies tax collection and auditing. This method ensures efficient tax collection and makes it easier to assess the effectiveness of exemptions and deductions.

However, in Türkiye, businesses may not favor the refund model due to past experiences with delayed VAT refunds. Despite the current criticism, businesses are wary of a system where funds leave their accounts first.

I am not advocating for businesses to find ways to avoid paying taxes but suggesting that motivating businesses with exemptions and deductions reduces overall tax performance. This leads to the finance ministry adopting skewed approaches, such as increasing indirect taxes or adding other collection elements alongside corporate tax.

An effective refund model might enable satisfactory tax collection and allow for discussions on reducing corporate or income tax rates. While this approach may be optimistic, at least it could alleviate inflationary indirect taxes.