Mario Draghi takes the Italian post

Mario Draghi in Rome, Italy on 02/13/2021. © Marco Lacobucci Epp / Shutterstock

A political crisis was the last thing Italy needed during the Covid-19 pandemic. However, a personal conflict between the leader of Italia Viva, Matteo Renzi, and the former Prime Minister, Giuseppe Conte, led to the collapse of the coalition in mid-January. President Sergio Mattarella then tasked Mario Draghi, 73, former head of the European Central Bank (ECB), with forming a technocratic government, which he will chair as prime minister.

According to Mattarella, it would have been risky to hold an early election during the pandemic. Indeed, new elections would have delayed the fight against the pandemic. Furthermore, the prospect of a right-wing populist government would also likely have had a negative impact on financial markets – a risk that had to be avoided in an already difficult situation.

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Draghi inherits a difficult situation. In Italy, the health, economic and social crises triggered by the pandemic have exacerbated the country’s enormous structural problems. Italy’s “seven deadly sins” – as Italian economist Carlo Cottarelli called them – are tax evasion, corruption, excessive bureaucracy, an inefficient judiciary, population problems, the north-south divide and operating difficulties within the euro zone. As a result of the pandemic, gross domestic product (GDP) fell nearly 9% in 2020, public debt reached around 160% of GDP, and over 400,000 jobs were lost. The inability of traditional parties to find solutions to economic problems keeps support for the right-wing populist coalition (Lega, Fratelli d’Italia, Forza Italia) at almost 50%.

Even though almost all major political forces have declared their intention to cooperate with the Draghi government, the framework of a technocratic government offers a target to right-wing populists. It is quite conceivable that they will accuse Draghi of lacking democratic legitimacy. It will also be a challenge for the new head of government to govern without his own parliamentary majority.

Managing the health crisis without austerity

The top priority of the new management will be to manage the health crisis. This includes accelerating vaccinations and supporting schools and the job market. This means requesting and successfully using funds from the financial assistance plan of the European Union to mitigate the economic and social consequences of the COVID-19 pandemic. The expected 200 billion euros (243 billion dollars) from this fund could benefit the economic recovery as well as the planned structural reforms in public administration, taxation and justice, which will give the new government more leeway. maneuver in economic policy.

Unlike the last technocratic government of Mario Monti between 2011 and 2013, the fact that Draghi did not have to carry out politically expensive fiscal consolidation with possible negative effects on GDP growth can also be seen as an opportunity. This is mainly due to the broad market confidence in Draghi and the fact that his government operates under the protective aegis of the ECB from the start, which will not allow the cost of servicing the public debt to rise excessively. Eurozone fiscal rules have also been temporarily suspended; this helps support the economy through fiscal policy measures.

Finally, we must not forget that, despite the structural problems, the Italian economy has many strengths: Italy is one of the most industrialized countries in Europe and the second largest exporter after Germany. If some obstacles to growth are removed and, for example, credit is released by the Italian banking sector, the pace of the recovery could accelerate significantly. Draghi’s experience at the Ministry of Finance and at the central bank could help him set a decisive course.

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Nonetheless, given the major challenges facing the technocratic government of Draghi, one should be cautious about expectations. The next general elections are in less than two and a half years and it is not excluded that they will be brought forward. This is very little time to tackle the structural problems that have existed for decades.

To avoid a victory for the right-wing populists, the new head of government will do everything in his power to prevent early parliamentary elections until the current moderate majority in parliament has elected President Mattarella’s successor. The latter’s mandate ends in February 2022, and it is not excluded that Draghi himself will succeed Mattarella. He could use his authority and his power as president to stabilize politics, as is the traditional role of the Italian president.

In 2012, Draghi saved the eurozone at the head of Europe’s largest financial institution. In the current crisis, even if he is supported by figures from a broad political spectrum, he will act as the head of one of the most politically fragile governments in Europe – an incomparably less favorable starting position.

Draghi will make the best use of his time as head of government. For sure. However, given the level of massive support for the populists, the more important question is: after Draghi, will anyone take the helm and continue with their reforms or overthrow them? Not only the future of Italy but also that of the entire euro zone depends on it.

*[This article was originally published by the German Institute for International and Security Affairs (SWP), which advises the German government and Bundestag on all questions relating to foreign and security policy.]

The opinions expressed in this article are those of the author and do not necessarily reflect the editorial policy of Fair Observer.

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