Italy is still desperately in need of Draghi’s steady hand
A political crisis has hit Rome at the worst possible time for confusion
It was inevitable that the rare stability brought to Italian politics by Mario Draghi would not last. But months of simmering tension within Italy’s ruling coalition finally boiled over last week when the populist Five Star party, a key member of his cross-party government, boycotted a vote on a €26bn aid package meant to help families with soaring inflation. Despite the vote passing, Draghi offered his resignation as prime minister, which was duly refused by President Sergio Mattarella.
Italy is now in political crisis. With a cost of living crisis, the war in Ukraine and a planned “anti-fragmentation” package by the European Central Bank, it is the worst possible time for confusion. This week will be crucial, and not just for Italy.
The best hope lies in Draghi continuing as prime minister for as long as possible. He will address lawmakers in parliament on Wednesday. Elections scheduled for springtime 2023, when Draghi was due to step down, may be brought forward unless Mattarella can help heal the coalition rift. While there is a risk to delaying elections — a Draghi-led coalition could be seen to limp on without a mandate — it would be far better to allow him time to advance essential policies over the next few months. The priority is to approve the next budget, and push through reforms required to unlock the next tranche of the EU’s €750bn Covid-19 recovery fund, €200bn of which is earmarked for Italy.
The gap between Italian and German borrowing costs — already wide after the ECB said it would end its bond-buying programme — extended on the political furore. High borrowing costs for Italy, which needs to roll over €200bn of debt later this year, are particularly problematic given an expected ECB rate rise on Thursday. The central bank will also reveal how it plans to tackle fragmentation in yields between heavily indebted countries such as Italy and their northern neighbours. Whatever its final design, the tool will require a modicum of political stability, not least because conditions will be imposed on countries benefiting from the new facility.
Italy under Draghi has been a staunch ally of Ukraine in the face of Russia’s illegal war. A political vacuum in Rome would be yet another distraction for the west: the UK is busy choosing a new prime minister, while Emmanuel Macron of France is without a parliamentary majority. The war has cast a long shadow over Italian politics, not only because it has caused energy and food prices to climb but also because of longstanding ties to Moscow. Five Star’s leader Giuseppe Conte openly questioned the wisdom of sending Ukraine arms, prompting a split in his party.
That so much should rest on the shoulders of Draghi, an unelected technocrat, is an indictment of Italy’s political class. Knowing that Draghi’s premiership has an expiry date, it has failed to convince markets it can find a plausible route to continue his reforms that Italy desperately needs. Instead, as elections have drawn nearer, infighting has increased. It is an echo of the embarrassing inability earlier this year to find a successor — beyond Draghi — to Mattarella, who was pushed at the age of 80 to serve a second seven-year term.
Italy’s political parties should commit to Draghi’s reforms and urge him to remain until the elections. But they must also credibly plan for a post-Draghi future. So too must the EU and the ECB: they both clutch to the former ECB president as a reliable and crisis-hardened partner. The window for structural reform in Italy that Draghi opened may be rapidly closing. Italian politicians, including Draghi himself, must ensure it does not slam shut this week. Whatever it takes.
Knowing that his premiership has an expiry date, the country’s political class has failed to convince markets it can find a plausible route to continue his reforms
© RIPRODUZIONE RISERVATA
Articolo tratto da “Financial Time” del 18/07/2022