Draghi drama spells more trouble ahead for Italy
Fresh political turbulence comes amid worsening economic outlook
Italian Prime Minister Mario Draghi remains in office, for now, after the president rejected his resignation offer yesterday. But the high-intensity political drama unfolding in Rome spells more trouble for Italy amid weakening economic performance, soaring inflation and a looming gas supply crisis.
In Skopje, European Commission president Ursula von der Leyen made an attempt at convincing the entrenched opposition in the North Macedonian parliament to embrace a French proposal that could unblock the Balkan country’s EU membership bid.
And in lighter (though not calorie-wise) news, the EU’s top court ruled that Danish dairy producers should not name their cheese feta.
Super Mario, buffering
Mario Draghi’s frustration with Italy’s fractious political parties, and their pre-election political manoeuvring, could soon bring an end to his term as prime minister amid gathering storms on the economic front, write Amy Kazmin in Rome and Sam Fleming in Brussels.
“The majority of national unity that had supported this government since its creation is no longer there,” Draghi said in a statement as he offered to resign. President Sergio Mattarella has rejected that offer and asked him to address parliament next week to assess how much support his government would have.
Markets were quick to react to this fresh bout of political turbulence: Italian stocks sold off yesterday, with a FTSE gauge of equities in the country sliding 3.4 per cent. The yield on Italian 10-year government bonds rose to 3.24 per cent, sending the gap with German 10-year yields higher as investors demand a rising premium for holding Italian debt.
Asked about this renewed political upset, EU economics commissioner Paolo Gentiloni (and a former Italian prime minister himself) stressed the importance of not adding political tremors at a time of high tension. “In these troubled waters — war, high inflation, energy risks, geopolitical tensions — stability is a value in itself. Now is the time for sticking together, for cohesion.”
Forecasts from the EU commission yesterday showed the toll the war is taking on the Italian economy: growth is now forecast to slow dramatically between this year and next, decelerating from a respectable 2.9 per cent in 2022 to only 0.9 per cent in 2023. The commission blamed ebbing real household purchasing power in the face of soaring commodity prices, as well as sliding consumer sentiment, rising fund costs and continued supply chain bottlenecks.
“The risks to the growth outlook are tilted to the downside, in particular in view of potential supply disruptions of natural gas, given Italy’s still sizeable dependency on deliveries from Russia despite recent diversification efforts,” the commission said.
Tensions within Draghi’s national unity government had been rising ever since Russia’s invasion of Ukraine. Draghi has been staunch in his support for the government in Kyiv and a key architect of the tough sanctions against Moscow. But some members of his coalition — including the Five Star and the League — have traditionally had close ties with Moscow and Vladimir Putin.
Those tensions finally boiled over yesterday, when the Five Star party refused to support the government in a critical parliamentary vote on an aid package aimed at cushioning the impact of inflation on the population. Though the package still passed with a majority, Draghi has said he is unwilling to govern unless all large parties currently in the ruling coalition are willing to remain united behind him so he can be effective as a leader.
The suspense will rise as Draghi’s parliamentary appearance gets closer, with some parties eager to try to persuade him to stay on for another few months, and others calculating the likely benefits of early elections.