It has largely gone unnoticed but Italy has formed a new government – again – with a new leader at the helm, Mario Draghi. This time, the Italians have been forced into a multi party coalition led by a technocrat who will look to restore confidence in the Italian economy amid a pandemic. Given the spotlight on “Super Mario”, we consider how he might approach the most important question: how to save an ailing economy.
The Facts
Italy was forced to turn to former Head of the European Central Bank, Mario Draghi, for fresh leadership following the former government’s collapse – in mid-January – after former Prime Minister Matteo Renzi withdrew support over the country’s economic recovery plans.
The Italians looking to bring stability to a tumultuous political environment have turned to Draghi who has well loved for his work across Europe’s financial sector.
As the former Head of the ECB – Draghi championed policies that promoted the Euro.
Draghi was officially sworn on 13 February and enjoys broad political support. It remains to be seen how long he can keep the coalition government together and if it will succeed.
Mario Draghi’s opening statement as Prime Minister: “Unity is not an option; unity is a duty,” resonated with Italians who afforded him a majority of Italy’s largest parties (bar Fratelli d’Italia) and 61% public support. He has brought the snake-pit of Italian politics radical left and hard-right to his table, bearing witness to the drawing power of “Super Mario”, the man who saved the Euro. Stocks soared, and investors flocked to bond auctions slashing Italy’s borrowing costs. Just when all seemed lost, Italy appears to have conjured another miracle. Draghi vowed to do “whatever it takes” in July 2012’s hot days to preserve the embattled euro. Back then, his words were enough, and his elaborate bond-buying programme unnecessary. Italy, however, needs more than rhetoric. Her pre-crisis GDP won’t recover until 2023 atop pathologies of slow growth, low productivity, high debt, and lack of leadership having burned through 6 PM’s in a decade, without the people electing one since 2008.
He has brought the snake-pit of Italian politics radical left and hard-right to his table, bearing witness to the drawing power of “Super Mario”, the man who saved the Euro
Italy remains largely ungovernable, with too many parties and vested interests. Mario Monti replaced Berlusconi in 2011, but lasted only 18 months in office, and his pension reforms were watered down. The perspectives are skewed as everybody is too dependent on a bloated government and kickbacks. Monti’s much needed tax hikes and public spending cuts were met with fierce opposition. Meanwhile, Berlusconi’s lack of fiscal prudence meant he avoided the media scrutiny.
Draghi won’t solve Italy’s problems, but he may introduce structural reform and better EU North-South relations. His credentials as former President of ECB for 8 years and Governor of Bank of Italy are fortuitous for Italy on the verge of receiving their €188 billion share of the EU Covid Recovery Fund.
Conveniently, Paolo Gentiloni, the EU Commissioner charged with overseeing the recovery plans, is a former Italian PM, and understands Italy’s roadblocks to reform. Draghi’s majority, expertise and public trust will expedite confidence in the EU Commission in their funding assessments.
15 of 24 cabinet seats are for politicians, the rest technocrats, such as advanced robotics physicist Robert Cingolani running the ecological transition super-ministry in charge of 37% of the EU funds. The room for technocrats will enable appointments that keep Draghi’s allies in charge of the recovery fund to focus on and execute good policy without being too preoccupied with political machinations.
Draghi has promised to speed up vaccination, overhaul income tax, reform judiciary, public administration and narrow one of Europe’s widest gender pay gaps. These will please Brussels, as Draghi’s reforms differ from Conte’s spending (Italy has huge debt). Draghi’s Premiership may see a unified Italy with more EU influence, contribute to policy reform and successfully deliver the EU Covid funding to Italy.
Italy, however, needs more than rhetoric. Her pre-crisis GDP won’t recover until 2023 atop pathologies of slow growth, low productivity, high debt, and lack of leadership having burned through 6 PM’s in a decade, without the people electing one since 2008.
It won’t be without the odd obstruction on the way. A cabinet uniting: Five Star Movement, three Leftist parties, Berlusconi’s Forza Italia and Lega Nord is inevitably going to clash. Already, 25% of Five Stars’ lawmakers dissented in the first Senate confidence vote over fear Italy will cede too much control to EU cohesion.
Whether Mario Draghi is the next Luigi Einaudi, time shall tell. The parallels are uncanny: Einaudi was also Governor of the Bank of Italy (1945-48), supported European Federalism, became second President of Italy (1948-56), also faced an economy dependency on high public spending and taxation that choked off productivity and investment, regional disparity, rigid labour markets and dated banking systems.
Whether Italy can execute the necessary reform is more ideological than methodical, it requires painful adjustments entrusting more power and responsibility to individuals and businesses and less to the government.
Italy is the worst European state for reliance on growing expectations of government support during the coronavirus crisis. The public think the EU recovery fund is for their handouts, and Mario their guardian angel will expedite the process. For the Italians’ sake, let’s hope Mario’s tough love means they have another thing coming.
