ROME – Former European bank chief Mario Draghi agreed Wednesday to try to form a non-political government to steer Italy through the coronavirus pandemic after last-ditch negotiations among political parties failed to produce a viable governing coalition.
The task won't be easy, though, given the populist party with the most seats in Parliament said it won't support a Draghi government and the right-wing party with the highest poll numbers is pressing for an early election.
Financial markets nevertheless welcomed indications that Italy's latest political crisis might soon get resolved - at least for the next few months. Draghi expressed assurances that he could fulfill the task Italy's president assigned him.
“I am confident that from the talks with the parties and the groups in Parliament and social forces, unity will come out, and with it, the capacity to give a responsible and positive answer to the appeal of the president of the republic,” Draghi told reporters at the presidential palace.
President Sergio Mattarella had turned to Draghi, who is credited with having saved the euro during Europe's debt crisis, after talks failed to find broader support for caretaker Premier Giuseppe Conte’s coalition of the 5-Star Movement and Democratic Party.
Conte was forced to resign last month after ex-Premier Matteo Renzi pulled support of his small, centrist Italy Alive party. Renzi, whose nickname is “il rottamatore,” or “the demolisher,” complained among other things about Conte’s plan to spend more than 200 billion euros ( $240 billion) in EU pandemic recovery funds and loans.
Draghi told reporters he accepted the mandate knowing that Italy faces the multiple challenges of a health care crisis, a national vaccination campaign and an economic recession. At the same time, though, he said Italy will have “extraordinary" resources from the European Union to try to help the economy relaunch.
“It's a difficult moment," Draghi said. But he added: “We have the chance to do a lot for our country."
During his tenure at the European Central Bank, Draghi became known as “Super Mario" for using new and sometimes unorthodox policy tools to solve the vexing debt crisis and other problems.
“Draghi to the rescue,” said Christopher Dembik, senior European economist at Germany's Berenberg bank, predicting that Draghi would eventually succeed in forming a broad-based government.
His greatest hurdle, though, will be securing support from the 5-Star Movement, which was the senior partner in Conte's government. The 5-Stars had insisted that Conte remain premier and bitterly resented Renzi’s power play that brought him down.
Five-star leader Vito Crimi said the movement would only support a political government. “As such, it will not vote in favor of a technical government headed by Mario Draghi,” Crimi said in a statement.
But the Democrats were lobbying the 5-Star Movement to back Draghi, given that the alternative - an early election - would likely send both parties packing and favor the right-wing, according to recent polls.
“I trust that reflection will make possible tomorrow what appears complex today," Conte's Democrat culture minister, Dario Franceschini, told Huffington Post's Italian edition.
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 in part as a response to Italy’s last technocratic government led by Mario Monti, in 2011-2013.
As a result, a “Super Mario" success story is by no means a given, said Giovanni Orsina, head of the Luiss School of Government in Rome.
“If they (the 5-Stars and the League) are going to somehow support Draghi then the government I think can be born," he said in an interview. “Otherwise there is the possibility that Draghi will get back to the president of the republic Mattarella and say ‘I am sorry, I cannot actually form a government.'”
Under Conte, the 5-Stars had headlined two successive governments starting in 2018, allying first with the right-wing League and then the center-left Democrats.
Markets and analysts reacted positively to a Draghi mandate, with borrowing costs sinking and the Milan Stock Exchanges benchmark FTSE MIB index rallying more than 2%. A government headed by a high-profile and respected figure like Draghi is “likely to be seen, especially by market investors, as a very good solution in the short term," UniCredit analysts said in a note.
A somber Mattarella told the nation Tuesday night that he essentially had no choice: While parliamentary elections are a necessary “exercise in democracy,” calling one now would be ill-advised at this crucial time in Italy’s history, the president said.
With over 89,000 confirmed virus deaths, Italy 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.
Renzi, who was premier from 2014-2016, blamed Conte’s forces for the failed negotiations to find a new coalition and governing program, 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 Wednesday. “Viva Italia."
The right-wing opposition still pressed for an early election, though the Forza Italia party of ex-Premier Silvio Berlusconi indicated its support and the League party led by the interior minister in Conte's first government expressed openness.
“We want to see a serious plans for cuts in taxes and bureaucracy, plans for schools, works projects to open — and obviously a prospective to a vote," League leader Matteo Salvini tweeted.
Draghi, a Massachusetts Institute of Technology-trained economist, led the Italian central bank from 2005-2011 when he was tapped to lead the European Central Bank, 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.
He 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 central bank was ready to do “whatever it takes” within its mandate to preserve the euro.
It proved to be a turning point for Europe.
Almost a decade later, the third-largest economy in the European Union was heading into a recession even before Italy became the first country in the West to be hit hard by COVID-19 last February. The ensuing economic devastation has only made matters worse, with gross domestic product falling 8.8% last year and nearly 450,000 jobs lost, national statistics agency ISTAT reported this week.
Italy’s borrowing costs in respect to the benchmark German bund dropped considerably on Wednesday, signaling markets’ approval of Draghi. 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.
Barry reported from Soave, Italy.