March 8, 2021

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Italy looks to Mario Draghi to end political crisis

ROME: Former European Central Bank (ECB) president Mario Draghi on Wednesday (Feb 3) accepted the task of trying to form a new government to end a long-running political crisis in Italy, and said he was confident of securing sufficient backing in parliament. 

In a brief statement after receiving the mandate from President Sergio Mattarella, Draghi said the country faced “a difficult moment”, battered by the economic and COVID-19 crises.

“I will look to parliament, the expression of the popular will, with great respect,” Draghi said.

He added that he hoped for unity from political forces as well as society at large, and would return to Mattarella to tell him of the outcome of his talks. He did not give any time frame.

Mattarella had asked Draghi to form a non-political government to steer Italy through the COVID-19 pandemic after last-ditch negotiations among political parties failed.

Draghi met with Mattarella for more than an hour earlier on Wednesday, and a Mattarella official told reporters that the president had given Draghi a mandate to form a government to replace caretaker prime minister Giuseppe Conte’s coalition of the 5-Star Movement and Democratic Party. 

The 73-year-old Draghi is credited with saving the euro during his tenure as ECB president.

Conte was forced to resign last month after ex-prime minister Matteo Renzi pulled ministers of his small, centrist Italy Alive party from Conte’s government. 

Renzi, whose nickname is “il rottamatore”, or “the demolisher”, complained, among other things, about Conte’s plan to spend more than €200 billion (US$240 billion) in European Union funds and loans to help the economy recover from the pandemic.

Draghi, known as “Super Mario” for having rescued the common currency during Europe’s debt crisis, had been rumoured as a possible choice to lead a non-political government if Conte was unable to find new parliamentary support. The negotiations among the parties in Conte’s collapsed government failed on Tuesday.

“Draghi to the rescue,” Christopher Dembik, senior European economist at Berenberg Bank in Hamburg, Germany, said, predicting that Draghi would eventually succeed in forming a broad-based government.

Italy Politics
In this Oct 28, 2019, file photo, Italy’s President Sergio Mattarella (left) welcomes then European Central Bank President Mario Draghi in Frankfurt, Germany. (File photo: AP/Boris Roessler, Pool)

His greatest hurdle will be securing support from the 5-Star Movement, the biggest political bloc in the Italian parliament and the senior partner in Conte’s government. The 5-Stars had insisted on Conte remaining prime minister and bitterly resented Renzi’s power play that brought him down.

“Profound contempt,” tweeted 5-Star Senator Paola Taverna.

For the 5-Stars, a Draghi government imposed by Mattarella poses an almost existential dilemma. The anti-establishment, populist movement emerged as a potent political force as a response to Italy’s last technocratic government led by Mario Monti, from 2011 to 2013.

READ: Italy’s Renzi would like ex-ECB’s Draghi to head Italy govt

Under Conte, the 5-Stars had led two successive governments starting in 2018, allying first with the right-wing League and then the centre-left Democrats.

Analysts said a government headed by a high-profile and respected figure like Draghi was the best possible outcome of the crisis, and “likely to be seen, especially by market investors, as a very good solution in the short term”, UniCredit analysts said in a note.

A sombre Mattarella told the nation on Tuesday night that he essentially had no choice: While an early parliamentary election was a necessary “exercise in democracy”, they were ill-advised at this crucial time in Italy’s history.

Italy Politics
A group of supporters hold placards reading “Draghi President” in front of the Quirinale Palace in Rome on Wednesday, Feb 3, 2021. (Photo: AP/Mauro Scrobogna, LaPresse)

Italy, with over 89,000 confirmed coronavirus deaths, has the second-highest COVID-19 death toll in Europe after Britain. It is trying to ramp up its vaccination campaign and must report back to the EU how it plans to spend the recovery funds.

“It is therefore my duty to make an appeal to all the forces in the parliament so that they grant the confidence to a high profile government not linked to any political force,” Mattarella said.

Italy, the third-largest economy in the EU, had been heading into a recession even before it became the first country in the West to be hit by COVID-19 last February.

READ: Italy to take legal action on COVID-19 vaccine delays to get doses

The ensuing economic devastation has only made matters worse, with gross domestic product falling 8.8 per cent last year and nearly 450,000 jobs lost, national statistics agency ISTAT reported this week.

Renzi, who was prime minister from 2014 to 2016, blamed Conte’s forces for the failed negotiations to find a new coalition and governing programme, saying they had rejected his proposals. He made clear he was pleased with the outcome, praising Mattarella’s “wise” decision.

“Now everyone of good will must welcome President Mattarella’s appeal to support the government of Mario Draghi,” he said on Wednesday. “Viva Italia.”

The right-wing opposition, which had been leading the polls prior to the government tumult, still pressed for an early election, though the Forza Italia party of ex-prime minister Silvio Berlusconi indicated its support for a “high-profile” government.

Italy Politics
Former European Central Bank President Mario Draghi arrives at the Quirinale Palace in Rome on Wednesday, Feb 3, 2021, for talks with Italian President Sergio Mattarella to discuss a mandate to form a new government. (Photo: AP/Andrew Medichini)

Draghi, 73, is perhaps best known for his intervention as ECB chief during the peak of Europe’s debt crisis in 2012.

As Italy was facing unsustainably high borrowing costs that threatened its financial stability, Draghi said in July 2012 that the ECB was ready to do “whatever it takes” within its mandate to preserve the euro.

It proved to be a turning point for Europe.

Draghi, a Massachusetts Institute of Technology-trained economist, had led the Italian central bank from 2005 to 2011 when he was tapped to lead the ECB, a job he held until 2019. Prior to that, he had been a vice chairman and managing director at Goldman Sachs International in London and an executive director at the World Bank.

Italy’s borrowing costs in respect to the benchmark German bund dropped considerably on Wednesday, signalling markets’ approval of Draghi as Italy faces the enormous task of spending billions in EU recovery funds.

Italy needs to turn to the markets regularly to keep up with payments on the second-highest debt to gross domestic product ratio in the eurozone. Italy historically has one of the lowest rates of capture of funds in the EU.

The Milan Stock Exchange’s benchmark FTSE MIB index rallied 2.7 per cent in early trading.