Mario Draghi is a technocrat’s technocrat. As president of the European Central Bank, he famously declared in 2012 that “within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.” These lines (and an extremely flexible interpretation of the ECB’s mandate) probably saved the euro from yet another crisis (whether the euro should — in its current form — have been saved is an entirely different question) and, for that matter, paved the way for what has, by the dismal standards of the EU’s single currency, been a period of relative calm.
Draghi’s term at the ECB ended in 2019, but in 2021, with Italy still roiled by the pandemic and its aftermath, he was picked by the country’s president — Draghi is not a democrat’s democrat — to form a broad-based government of national unity, something that probably only he had the stature to do. Draghi is nothing if not competent. He has proved fairly effective.
Ominously, however the Economist, the magazine that, among various brilliant calls, once described Merkel as the “indispensable European,” made Italy its “country of the year” for 2021, an honor that surely tempts fate. The language — high Davos — in which the Economist summed up the reasons for its decision contains a few gems worth pausing to contemplate:
The Economist has often criticised Italy for picking leaders, such as Silvio Berlusconi, who could usefully have followed the Eurovision-winning song’s admonition to “shut up and behave.”
Because, of course, politicians should just quietly do what they are told by their supposed betters in Brussels, Berlin, and Frankfurt (home of the ECB). Berlusconi felt otherwise and was forced out under circumstances that remain controversial.
Back to the Economist:
Because of weak governance, Italians were poorer in 2019 than they had been in 2000.
Not really. Italy’s governance has not been the best, but its underlying problem has been that it cheated its way into a currency, the euro, for which it was not only thoroughly unsuited but was always likely to remain so.
In any event, Mr. Draghi seemed for a while today to be on his way out.
Mario Draghi on Thursday said he would quit as Italian prime minister, after a political party in his ruling coalition in Rome refused to participate in a confidence vote earlier on in the day.
The party in question, the left-populist Five Star Movement, voted against the motion for reasons partly connected with a trash incinerator in Rome (Five Star has an environmentalist strain) but that also reflect divisions within the party. Draghi’s government has the parliamentary support to soldier on without Five Star, but he has been eyeing the door for a while.
However, Draghi’s meeting with Italy’s president to talk things over does not seem to have included his resignation.
Italy’s Mario Draghi did not offer his resignation in a meeting with the head of state on Thursday, according to people familiar with the issue, a move which swiftly reassured investors.
What happens next?
No one knows.
Bloomberg:
If Draghi does submit his resignation in the near future, Mattarella could ask the former head of the European Central Bank to seek support from all allies in a new vote, after a round of talks. A collapse of the coalition could prompt an early election, possibly in the fall, but most parties would seek to avoid this.
Italy’s political turmoil comes as Europe grapples with an energy crunch caused by Russia curtailing gas exports amid its war in Ukraine, stoking fears of a recession. The European Union, whose industries are heavily dependent on Russia gas, cut its growth forecast for 2023 in new projections.
A Draghi exit could throw in doubt his country’s reforms needed to benefit from EU recovery funding, the administration’s strong pro-European stance and its staunch backing for military shipments to Ukraine. . . .
Investors dumped Italian assets earlier Thursday, spooked by the risk of a government collapse and complications for ECB efforts to support the market. Italy’s stocks and bank debt led regional losses, and the euro fell below parity against the dollar.
My guess is that Draghi will hang around for now, and so will some form of the current government (my wish is that this “prediction” could vanish from the web in short order).
As I noted yesterday (quoting the Daily Telegraph’s Ambrose Evans-Pritchard), Goldman Sachs has forecast that Italy’s GDP could fall by as much as 4.1 percent if Putin turns off Russia’s gas pipelines rather than merely reduce what flows through them.
I added:
Think for a moment about that fall of 4.1 percent predicted for Italy and what this might mean for market concerns about Italian government debt, something that has (off and on) once again been causing anxiety within the euro-zone. Only silver lining (from the ECB’s point of view) is that the central bank might use the gas crisis as yet another excuse to preserve Italy’s position with the euro zone. And to be fair, that’s understandable on a very short-term view. Having both a gas crisis and an Italy-in-the-eurozone crisis at the same time would be . . . a bit much.