Can Europe’s former central banker Mario Draghi, and now Italy’s new prime minister, do whatever it takes to save the country?
Last week, the former European Central Bank governor Draghi was sworn in as Italy’s new prime minister as head of a unity government following the collapse of the previous governing coalition last month.
Draghi, who has the backing of all of Italy’s main parties, except for a far-right one, managed to guide Europe through a sovereign debt and bond crisis ten years ago by buying up sovereign debit and reassuring the markets with a pledge to do whatever it took to save the embattled euro.
But Draghi, who the Italian press nickname “Super Mario,” will need all his famed political savvy and diplomatic skill to accomplish what his predecessors failed to pull off — shake the country out of a dangerous economic malaise, say analysts.
He has entered office in a position of strength: he has the support of a broad coalition that should be able to maneuver legislation through Italy’s notoriously fractious parliament with ease. He has high approval ratings in the opinion polls and he has an estimated $242 billion in grants and loans from the European Commission to spend on post-pandemic economic recovery. Divisions over how to spend that money was the immediate cause of the collapse of the previous squabbling government.
Italian stocks soared with Draghi’s arrival into power and Italy’s borrowing costs on the open bond market have fallen with investors much happier to lend to a country with “Super Mario” at the helm. And the 73-year-old Draghi made a well-received emotional appeal in his maiden speech as prime minister last week, saying, “Unity is not an option, unity is a duty. But it is a duty guided by what I am sure unites us all: love for Italy.”
His cabinet, too, which features a sprinkling of respected technocrats among the politicians, including Daniele Franco from Italy’s central bank as the new finance minister, has also been praised. Matteo Renzi, a former center-left prime minister who triggered the political crisis that led to Draghi’s appointment, says the cabinet is “of a high level.”
But Draghi inherits an economy in collapse.
Troubles predate COVID
When the pandemic struck last year Italy still had not recovered from the 2008 global financial crash. In 2019, economic output grew by an anemic 0.3% over the previous year. Unemployment — especially among the young — has remained stubbornly high, the country’s bureaucracy is hidebound and layers of regulations discourage the opening of new businesses, say analysts and economists. Firing is difficult in Italy, deterring employers from taking on new staff, encouraging them to rely instead on short-term contracted workers, who enjoy few, if any, benefits.
But before Draghi can grapple with the economic challenges the country faces, his government still has to suppress the coronavirus pandemic and to get a sluggish inoculation campaign moving much faster.
It was exactly a year ago that two of Italy’s most productive and wealthiest regions started to lock down and one of Draghi’s first duties this week was to announce the government needed to extend a ban on people traveling between regions until late March because coronavirus cases in Italy are rising again.
The surge in cases is in large part due to the rapid transmission of the more infectious British variant, which is likely to become the dominant strain in the country, say epidemiologists.
Despite the jump in cases, frustrated Italians ignored official appeals to stay home and went out Sunday to enjoy the emergence of mild weather with crowds milling in streets and parks and gathering at seafronts in several cities. As of Sunday, Italy had registered 95,718 coronavirus deaths from 2.9 million cases.
“I'm worried,” Massimo Galli, a specialist at the Sacco de Milan hospital, told Il Messaggero newspaper. “To be honest, all the data is going in the direction of a rise in new cases,” he said.
The longer the pandemic lasts, the more economic damage piles up, making Draghi’s job even more daunting. The question, say analysts, is whether Italians will remain patient, not only with pandemic curbs and restrictions but with “Super Mario.” Marco Valli, an economist at Italy’s Unicredit Bank, says politicians know what reforms are needed to boost productivity and economic growth. “The question is, Will Draghi be able to fast-track the badly needed ones?” he asks.
Draghi is not the first technocrat asked to dig Italy out of its economic hole — nor is he the first to be feted on arrival. In 2011, the respected economist and former EU commissioner Mario Monti was picked to head a largely technocratic government as yields on Italian government bonds soared and the country’s borrowing costs sky-rocketed, prompting fears Italy would join Greece in economic collapse.
Monti managed to steady the country and introduced reforms, cutting public sector costs and slashing pensions. But his government lasted 18 months and many of the reforms he introduced were subsequently reversed.
Draghi has promised to overhaul Italy’s byzantine tax system, to help boost female employment and to reform public administration. And much of his focus, he says, will be on structural reform and making Italy’s economy much greener and more sustainable — that has earned praise in Brussels. But how long political unity lasts is open to questions, say analysts. An ominous sign came last week when a fifth of the lawmakers of Italy’s hybrid anti-establishment Five Star Movement, which is part of the new governing coalition, withheld approving his appointment.