Mario Draghi’s government ended earlier than many analysts expected.
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In about a week, Italy has gone from having a stable government to preparing for snap elections in September – which can be seen The far right is in charge of the next alliance In Rome. The outlook has investors questioning Italy’s economic future and its broader role in European politics.
Draghi is “certainly a little tired of politics in government,” an official working for the Italian government, who wished to remain anonymous due to domestic political turmoil and the sensitive nature of the comments, told CNBC.
A former executive at Goldman Sachs International, Draghi became prime minister of Italy in February 2021 to lead a technocratic government, supported by four main parties on the political spectrum. His arrival in Rome was welcomed by European investors and officialswho are desperate to see a safe pair of hands leading the eurozone’s third-largest economy.
The former head of the European Central Bank has been multifaceted, including laying out a reform plan to achieve more. 190 billion euros (194.52 billion USD) from the EU. However, the disbursements are related to the completion of these reforms, so investors are concerned the next alliance may not be able to carry out Draghi’s plan and therefore may not receive the full amount. sets of money from Brussels.
The Prime Minister also revived Covid-19 vaccination efforts and contribute to economic recovery. But throughout his mission, Draghi has struggled with a range of political sensitivities.
The downfall of his government happened because of those weaknesses at the heart of government. It started with the Five Star Movement (M5S), a left-wing and populist party, boycotting a vote on a package intended to help Italians cope with the rising cost of living. The package includes a controversial waste incinerator in Rome, which the M5S has vehemently opposed.
Also an anonymous CNBC source said that M5S has “a large following in Rome, not much in the rest of the country, but the law is a problem for this constituency.” The official said that by not voting for the broad package and blocking it, the party is intrinsically against the government it joins.
Draghi offered to resign after the deadlock over the vote.
A second Italian official, who wished to remain anonymous due to the sensitive nature of the situation, said the move from the M5S was “an important decision.”
Draghi was “confident this is a government of national unity”, the official said. But with M5S abstaining on the government bill, “Draghi feels [it] increasingly difficult to enact its program,” the official added.
Arriving late at night on Wednesday, July 15, Italy President Sergio Mattarella rejected Draghi .’s initial resignation and told him to build a new congressional consensus.
In the days that followed, hundreds of mayors signed a letter asking him to stay. Union leaders and industrialists also came together to demand that Draghi stay in office. And there is an online petition signed by thousands of citizens wanting him to stay.
The following week, Draghi returned to the Italian Parliament and asked the legislator for a new mandate. “Are the parties and parliamentarians ready to rebuild this treaty?” he declared in the Senate on July 20. “Italy needs a government that can function quickly and efficiently,” he told lawmakers.
The CNBC source first said they were surprised when Draghi asked for a new assignment to try to build unity again. “Honestly, his speech was really tough against M5S and Lega [party] … his aim was to make it clear: if we form another government, we have to carry on without problems,” the source said.
“If they say yes, [Draghi] have all the power he wants; if they say no, he can resign without being blamed for leaving the country,” the official said.
A second CNBC source emphasized that Draghi is “very concerned” about possibly passing the new law in Congress. Draghi will complete his duties before next summer with parliamentary elections scheduled for June 2023.
But Italy is now preparing for a new vote on September 25 with a lot of risk at stake.
“If a right-wing coalition wins Italy’s general election on September 25 and then abandons economic reforms, that could jeopardize not only Italy’s access to financial support the EU’s core and the ECB’s new defragmentation tool, which is generally the future EU integration, and common debt issuance,” George Buckley, an economist at Nomura, said in a research note on Thursday. last week.
The upcoming election will be important not only to see where Italy’s finances and financial strategy go, but also whether Europe continues to raise new funds together.
The rThe ecovery plan was born due to the impact of the coronavirus lockdown available in European economies. This is so significant that the EU’s 27 members have decided to raise funds collectively through the European Commission, the EU’s executive body, for the first time. Italy, as it has been hardest hit by the pandemic, is receiving most of the borrowed money.
However, if there is a problem with the political situation of the biggest benefactor, this could impede even more collective borrowing, even when addressing climate change or its impacts. Russia’s invasion of Ukraine.
“The next Italian government is unlikely to put the country’s future in the euro area into question, in a repeat of the turmoil we saw after the 2018 election. But it does. will likely implement looser fiscal policy and have a harder time passing reforms,” Jack Allen-Reynolds, senior Europe economist at Capital Economics, said in a note this week. before.