ROME— Mario Draghi, the former head of the European Central Bank, became a hero of the financial markets and the European Union after deactivating the continent’s debt crisis by promising to do “everything necessary” to save the euro.
This could be easy. Now Mr Draghi must prove he has what it takes to become the next Italian prime minister, convince the country’s failed parties to support him and reverse a long economic downturn to the depths of the worst pandemic of a century.
The future of the euro could again depend on how Mr Draghi feels. The third largest economy in the eurozone after Germany and France is also its main long-term problem. Italy’s debts are high, its growth is chronically low and its society is increasingly frustrated.
Since Brexit, the EU’s political establishment has cast a nervous eye on Italian public opinion, which previously saw Europe as the answer to Italy’s problems, but now sometimes sees the EU and the euro as part of it. of the problem. Draghi, a believer in the European project, will try to convince the Italians that their problems are homemade.
Fixing Italy’s economy is a puzzle that has challenged the best efforts of many well-regarded technocrats and reformist-minded politicians over the past quarter century.
“Awareness of the emergency entails responses that live up to the challenge,” Draghi said Wednesday after Italian President Sergio Mattarella commissioned him to form a government. “Defeating the pandemic, completing the vaccination campaign, offering answers to the daily problems of the citizens, reviving the country, are the challenges we face.”
First, however, Mr Draghi must convince most lawmakers in a fragmented parliament to support him. So far, only centrist parties have publicly supported, despite Mattarella’s appeal to unite partisan divisions. To become prime minister, Mr Draghi will need the support of the populist 5 Star Movement or the Nationalist League. Both sides have been untenable against Italy’s habit of appointing governments led by economists and technocrats like Mr Draghi.
However, financial markets hailed the appointment of the former head of the ECB, known as “Super Mario”. The Milan stock market rose and the risk premium on Italian government bonds compared to German super-safe bonds fell to the lowest level for almost five years.
Mr Draghi’s main assets, in addition to his high personal reputation, include more than € 200 billion, equivalent to $ 240 billion, in economic recovery funds promised in Italy by the EU. Europe’s massive recovery fund was built last year mainly because Berlin, Paris and other key EU capitals feared the Covid-19 pandemic could lead to a lasting economic depression in Italy and other parts of southern Europe. . Arriving less than a decade after the economic pain of the eurozone debt crisis, this result could be politically explosive for the bloc, EU leaders feared.
Fragmented
Mario Draghi needs more support to become Italian prime minister.
Lower House of Parliament in Italy, current seats per party and support for or against Mario Draghi
191
5 star movement
(eclectic)
28
Italy Viva
(centrist)
93
Democratic Party
(center-left)
50
Mixed group
(eclectic)
91
Come to Italy
(center-right)
33
Brothers of Italy
(far right)
191
5 star movement
(eclectic)
28
Italy Viva
(centrist)
93
Democratic Party
(center-left)
50
Mixed group
(eclectic)
91
Come to Italy
(center-right)
33
Brothers of Italy
(far right)
191
5 stars
Movement
(eclectic)
28
Italy
Alive
(centrist)
93
Democratic
Party
(center-left)
50
Mixed
group
(eclectic)
91
Power
Italy
(center-right)
33
Brothers
of Italy
(far right)
33
Brothers of Italy
(far right)
91
Come to Italy
(center-right)
28
Italy Viva
(centrist)
50
Mixed group
(eclectic)
191
5 star movement
(eclectic)
93
Democratic Party
(center-left)
But the last Italian government could not agree on how to use the money, contributing to its collapse earlier this month. Other EU capitals, after accepting funding, looked boldly at Rome’s political crisis and are likely to feel relieved if Mr Draghi manages to take over.
Draghi has argued that EU funds, if used for growth-boosting investments, could be the key to reviving the Italian economy and making its debts sustainable.
“We have extraordinary European resources at our disposal. We have the opportunity to do a lot for our country, “he said on Wednesday.
If Mr Draghi does not find enough support in parliament, it is likely that Italy will be heading for a speedy election. The majority of the political class wants to avoid it in the middle of the Covid-19. Mattarella has warned that the election could also delay crucial action on the economy and the pandemic for months.
The political crisis in Italy
Italy’s deep economic problems include the lack of productivity growth dating back to the 1990s. Economists and entrepreneurs point to many factors that hamper innovation and productive investment: a bureaucracy and permits, complex and contradictory laws, a sclerotic judicial system, underfunded and obsolete universities, public sector corruption, political instability that hinders decision-making . long-term poverty and underdevelopment in southern Italy, and a business sector with an excess of small family businesses, often run by aging and risk-averse founders.
Italy’s economy contracted close to 9% in 2020, one of the worst falls in Europe due to the impact of Covid-19 and the long blockades. Its national debt increases to 160% of gross domestic product, the second highest ratio in the EU after Greece.
The last time a technocrat led Italy, the results were mixed. Mario Monti, a respected economist and former EU official, is remembered for causing painful fiscal austerity during the eurozone crisis. Mr Monti’s tough policies may have helped restore some of Italy’s credibility to EU bond markets and authorities, but its fiscal hikes also deepened Italy’s recession, while its structural revisions they contributed little to improving Italy’s long-term growth performance. The experience turned many Italian voters against the domination of the technocrats and helped fuel the growth of populist and anti-establishment parties.
Draghi is well aware of Italians’ skeptical view of technocratic-led governments and has been reluctant to enter the political struggle, according to people who know his thinking. But after the departure of Prime Minister Giuseppe Conte’s government, which collapsed this month, Italy had few credible leaders to turn to.
Write to Marcus Walker to [email protected] and Giovanni Legorano to [email protected]
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