It won’t be an easy ride in Rome for Mario Draghi, the man who soothed Europe’s financial markets in 2012 with his bold declaration to do “whatever it takes” to save the euro during the eurozone’s sovereign debt and banking crises. Less than 15 months after he stepped down as President of the European Central Bank (ECB), when his negative interest rates policy was criticised for sucking money out of savers, he now finds himself thrust to the centre of Italy’s fractious politics.
On Wednesday, Mr. Draghi, who was previously Governor of the Bank of Italy, accepted the mandate by the country’s President, Sergio Mattarella, to form a new national unity government following the collapse of the coalition led by Giuseppe Conte in the last week of January.
A crucial verdict
During his eight-year stewardship, the Frankfurt-based institution’s policy to buy unlimited quantities of sovereign bonds of ailing economies was a pivotal moment in stabilising the single currency area, even if the initiative incurred the wrath of Germany and other affluent European Union (EU) States of straying into uncharted fiscal territory.
Now, Mr. Draghi’s efforts to rescue the Italian economy, drawing on €200 billion in grants and loans from the EU €750 billion recovery fund, would pronounce, so to say, a verdict on the bloc’s response to the pandemic. Crucially, Mr. Conte’s government collapsed because Italia Viva, the party of former Prime Minister Matteo Renzi, withdrew backing citing strong differences with the government’s recovery plans that must be approved by Brussels.
The sheer political complexity of the latest endeavour the technocrat has embarked on could not be overstated. Above all, Mr. Draghi must attempt to cement the differences among Italy’s several feuding parties. The most recent government collapse, where Mr. Renzi was primarily responsible, was the second in the last couple of years. In 2019, the populist Five Star Movement, the largest party in the Italian Parliament, fell victim to the personal ambitions of Matteo Salvini, leader of the far-right Northern League. Mr. Draghi faces the unenviable task of bringing these rival parties on board, failing which Italy will have to go to election before the scheduled 2023 date. With 88,000 deaths from the COVID-19 pandemic, this would amount to a costly and unacceptable distraction.
Reactions
The League, which would still prefer to test its recent high ratings at the hustings, has said that the party would back Mr. Draghi’s bid to form a government, given its strong base among business classes in the industrialised northern regions. Mr. Salvini, whose personal authority has eroded somewhat, would have to be mindful of the Brothers of Italy party linked to post-fascist forces, which has likened the proposal to a government born in a laboratory.
On the other hand, soon after the President’s invitation to Mr. Draghi, the acting leader of Five Star declared his opposition to a government led by an unelected technocrat. The centre-left Democratic Party and Viva Italia are expected to support the unity government. Mr. Draghi’s stint at the ECB was underpinned less by a concern to mirror the German Bundesbank’s anti-inflationary stance than the overarching priority to ensure the survival of the euro. It is arguable that his stance was vindicated by a prolonged cycle of persistently low inflation and ultra-loose interest rates, although Wolfgang Schauble, Germany’s Finance Minister at the time, blamed Mr. Draghi’s policies for the rise of the far-right Alternative for Germany party. That kind of decisiveness could trigger very different consequences in Italy’s highly fragmented polity.
‘Super Mario’ was the sobriquet Mr. Draghi had earned for the calming effect of his interventions into financial markets. At the current juncture in Italy, something close to that seems like securing a parliamentary majority and averting an avoidable general election.
Garimella Subramaniam is Director - Strategic Initiatives, AgnoShin Tecchnologies Pvt Ltd
