Usually politicians resign in shame, but this one tried to do it amid acclaim. Italian Prime Minister Mario Draghi tried to resign last week but was rejected by the country’s president. Now, the Italian political class is practically begging him to stay on.
On Sunday, hundreds of mayors across the Southern European nation joined tens of thousands of ordinary citizens in signing a petition pressing Draghi to reconsider. Here’s why everyone — from union leaders to corporate executives — seems to agree on one guy.
This Ain’t Your Nonna’s Artichoke Spread
Italy’s politics are mired in one spicy meatball. On Thursday, the populist Five Star party boycotted a vote on a €26 billion package to help Italian households cope with rising food and energy costs. Their objection was to the construction of a massive incinerator in Rome to deal with the city’s garbage crisis (meaning this metaphorical dumpster fire was caused by literal heaps of trash).
While the funds still comfortably passed, the technocratic Draghi — tapped last year to lead a diverse, multi-party coalition including Five Star — has said he is only willing to lead a national unity government. That’s because he wants to achieve widespread buy-in for economic reforms that are required for Italy, where government debt is over 150% of GDP, to receive €200 billion in EU pandemic funds. A key risk measure for the EU underscores Draghi’s value, and why the threat of losing him has many worried:
- The Italy/German 10-year bond yield gap hit a one-month high of 2.19% on Friday, which Rabobank strategists noted is within “the ‘danger zone’ of 2-2.5 percentage points that has prompted verbal interventions from the [European Central Bank] in the past.” The gap is symbolic of investor concerns about the economic risks facing Italy, including inflation and the war in Ukraine.
- Draghi, a former ECB president who navigated the Eurozone crisis of 2009-10 and was dubbed “the greatest central banker of modern times” by Nobel Prize-winning economist Paul Krugman, is broadly popular and seen as maybe the sole figure who can command a fragmented Italian politics through what’s coming.
Wait, What’s Coming? With or without Draghi, the ECB is expected to lift interest rates for the first time in a decade on Thursday. Higher borrowing costs have raised the specter of “fragmentation risk” — a term to describe significant divergence in the bond yields of indebted southern European economies versus their northern peers, which could lead to investors fleeing countries like Italy for safer returns elsewhere. The ECB says it is working on an “anti-fragmentation” tool.
Stay Tuned: Italian President Sergio Mattarella asked Draghi to return to parliament to see if he can find comfortable backing, something he’s expected to attempt on Wednesday. And you thought you had a stressful work week.