MILAN/LONDON, Sept 26 (Reuters) - Italy's right-wing bloc should have a solid majority in both houses of parliament following Sunday's election, potentially giving the country a rare chance of political stability after years of upheaval and fragile coalitions.
Giorgia Meloni, leader of the nationalist Brothers of Italy, looks set to become Italy's first woman prime minister at the head of its most right-wing government since World War Two.
The absence of the anti-euro rhetoric seen in the 2018 election had reassured investors in the run-up to the vote. A poor result for Matteo Salvini's League, the party with the least pro-European stance, could also be a relief.
However, Meloni and her allies face a daunting list of challenges, including soaring energy prices, war in Ukraine and renewed slowdown in the euro zone's third largest economy.
With markets watching closely, we take a look at five key questions on the radar.
1/ Is the prospect of political stability a positive for markets?
Possibly. Meloni's comments during the election campaign that she would respect EU budget rules reassured markets and a slight underperformance by Italian bonds on Monday could be due as much to global market unease than a reaction to the result.
At around 230 basis points, the closely watched gap between 10-year Italian and German bond yields has been relatively stable.
But pressure on bonds could build as focus shifts to budget policy in 2023. Despite Meloni's reassuring tone, concern about a potential clash with the European Union could grow if right-wing parties push for lower taxes and higher pension spending.
Also, the right is not seen wining a two-thirds majority in both houses of parliament that would allow the constitution to be changed without a referendum, which could have caused some angst since the constitution protects issues related to Italy's EU membership.
"We do not expect an immediate push for a major fiscal relaxation, but we do see risks over the medium term that the right's policy agenda will clash with EU objectives," said Citi economist Giada Giani.
"Meloni's first key decision will be the appointment of the finance minister, with a pro-Europe, fiscally-cautious personality looking a likely choice for now," she added.
2/ Could Italy's EU funding plan be modified?
The Brothers of Italy sees room to amend Italy's EU-backed recovery fund programme to account for the energy shock.
To receive the next tranche of funds in December, Rome needs to meet 55 new targets, which a party official has said should be adjusted. Brussels has said only a fine-tuning of the agreed recovery plan is possible.