The fact that Italy’s government has resigned to make way for a new one may not come as a surprise at all as this has happened often enough during the country’s history since the end of World War II in 1945. The fact that the Italian government had to resign because a small party (Matteo Renzi’s party, Italia Viva) withdrew its support is also nothing new to Italy’s parliamentary history.
What may seem surprising is that a political crisis was caused at a time when Italy, like any other country, needs strong leadership to tackle the impact of the coronavirus on the health of the public and on the economy. The point at issue that caused the collapse of the centre-left government was how to use the €185 billion that were offered to Italy from the EU Recovery Fund. The sentence found in Italian literature, “everything must change so that everything can stay the same”, seems to be so apt in the circumstances.
The outgoing prime minister sought to garner support to remain in the post following a cabinet reshuffle. However, this did not work out. As a result, Mario Draghi, the former president of the European Central Bank, was asked by President Sergio Mattarella to form a new government.
So far, only one party seems to be opposing such an appointment, the right-wing party Fratelli d’Italia, but the situation is very fluid and there may well be last-minute surprises. This is again nothing new in the Italian political scene.
My feeling is that if the government led by Draghi does not deliver the required reforms and does not steer the economy in the right direction, we will be heading into some turbulent times in the eurozone
There is no doubt that Draghi has impressive credentials and enjoys the respect of most Italians. He is also regarded well in Europe and is credited with having saved the euro at the time of the sovereign debt crisis in 2012. His words, the ECB will do “whatever it takes” to save the euro, will make it into the books of Europe’s economic history. No wonder he is referred to as ‘Super Mario’.
From a political perspective, the appointment of Draghi may jar as he was never elected to be prime minister. One may debate whether a democracy is healthy when an unelected person is appointed prime minister. Therefore, one would hope that his time as prime minister will not last long.
On the other hand, from an economic perspective, one does hope that his appointment lasts till the end of the legislature. This is because the Italian economy does need a strong leader who can push forward a strong programme of economic reforms, which are long overdue.
From what has emerged so far, he is in favour of a progressive tax system (we need to remember that the centre right coalition is in favour of a flat tax rate) and of the green economy. He also wants to ensure that there is a plan of how to spend effectively the money of the EU Recovery Fund. He is most certainly more pro-Europe than many who will be supporting him in parliament. The Italian economy needs the same commitment he showed in that famous ‘whatever it takes” moment.
The feedback from the financial markets has been positive as the spread between the Italian and the German bonds had decreased. What one certainly hopes for is that he delivers back to the Italians an economy that is strong enough to be able to reject the populist proposals of certain parties, such as exiting the euro, if not even exiting the EU.
My feeling is that if the government led by Draghi does not deliver the required reforms and does not steer the economy in the right direction, we will be heading into some turbulent times in the eurozone. In the medium term, we may also be facing another exit from the EU. Irrespective of one’s political beliefs, we should all be wishing that Draghi succeeds in his task because the eurozone economy needs him to succeed.