(Bloomberg) -- Giorgia Meloni is on track to lead Italy's most right-wing government since World War II after early results signaled a clear victory for her coalition in Sunday's election.
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Meloni's alliance, which includes Matteo Salvini's League and Silvio Berlusconi's Forza Italia, will win about 43% of the vote for the crucial upper house, according to projections from RAI, the public broadcaster. That would give the bloc at least 114 seats in the Senate, where 104 votes are required for a majority, putting her in line to become the country's first female prime minister.
"It's a pretty decisive outcome," said Geoffrey Yu, a senior FX strategist at Bank of New York Mellon in London.
Meloni has emerged from the political fringes after leading the opposition to Mario Draghi's technocratic administration over the past 18 months. Yet the charismatic 45-year-old has little experience of governing and she would be taking office at a perilous moment for her country.
The next Italian government will face a series of overlapping crises as the energy shortages triggered by Russia's invasion of Ukraine fuel rampant inflation and undermine growth. The hit to Italy's finances and the prospect of more interest-rate hikes from the European Central Bank have pushed the yield on Italy's 10-year bonds to more than 4.3% compared with less than 1% in December.
Meloni cut her teeth in politics as a far-right activist in the 1990s and her campaigning is still marked by fiery attacks on the European Union, immigrants and LGBTQ groups. But she has also tried to reassure voters and investors that she will keep Italy's mammoth debt under control and won't question the country's foreign alliances or support for Ukraine.
"The question is whether they will deviate from Draghi's reform plan, which will impact whether the money will keep flowing from the EU," Yu said.
Read More: Giorgia Meloni Makes Markets Edgy, But Italy Wants Her in Charge
Meloni is likely to have a strong hand in government as she looks to reverse some of the reforms that Draghi had introduced in an effort to boost growth. Seeking significant revisions could put at risk a spending plan for about 200 billion euros ($198 billion) of pandemic recovery funds from the European Union.
Traders brushed off the result during early foreign-exchange trading in Asia, with the euro up as much as 0.2% against the dollar after earlier falling as much as 0.3%.
The result marks a meteoric rise for Meloni's party, the Brothers of Italy. The group is set to claim about 25% of the vote, compared with 4% in the last election in 2018.
As she looks ahead to potentially taking office toward the end of next month, she will be keeping a close eye on her coalition ally Salvini, whose party underperformed with about 9% of the vote. Salvini saw himself as Italy's next prime minister in 2019 when his party, the League, led the polls with 34% and has only reluctantly accepted that he has to play second fiddle to the Brothers of Italy.
"It won't be long before the government will be tested by internal tensions," said Giorgia Serughetti, a professor of politics at Milan University. "The poor support for the League was not expected. We should get ready for a government led by Meloni, but with a high degree of internal turbulence."
Throughout the campaign, Salvini has taken a more aggressive line on increasing borrowing to help Italians get through the energy crisis and he has questioned the effectiveness of sanctions against Russia. The League was projected to win about 9% of the vote with Forza Italia on 8%.
Draghi has spent about 66 billion euros to help families and businesses but has resisted political pressure to expand the budget deficit. That could be one of the first dilemmas with which a Meloni government has to wrestle. The right-wing bloc has also opposed reforming the obsolete tax system and freeing up competition, two key reforms pledged by Draghi to qualify for the EU funds.
Enrico Letta's Democratic Party, Meloni's main opponent in the campaign, came second in the exit polls with 19% of the vote and is set to lead the opposition. Giuseppe Conte's anti-establishment Five Star Movement registered a late surge to claim around 17% and is likely to be another important force in the opposition.
Election results will come in during the early hours of Monday with the Senate results to be tallied first before officials begin counting votes for the lower house. The new parliament, which has been downsized to 200 senators and 400 lower house lawmakers, will meet for the first time on Oct. 13.
Once the final results are in, the next step in the constitutional process will see President Sergio Mattarella consulting with party leaders before nominating Meloni to form the next government. That process could still last weeks.
(Updates with quote in third paragraph, markets in ninth)
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