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I have a multiple entry Schengen Visa issued by Germany for business meetings, but the meeting got cancelled.

Now I want to travel to Italy on holidays. Can I use my German Schengen Visa altough I have not entered Germany with this visa?

Or do I have to apply for a separate Schengen Visa from the Italian Embassy?

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Theoretically you can, but your primary purpose of the visit is no longer applicable and you are going to a different country for a different purpose than initially stated (and never utilized) .

There are significant chances that you may be refused entry unless you put up a strong case and are lucky.

I would apply afresh at the Italian Embassy.

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