Mario Draghi at the Quirinale Palace in Rome on February 3.
Photographer: Roberto Monaldo / LaPresse / Bloomberg
Photographer: Roberto Monaldo / LaPresse / Bloomberg
In less than a week, Mario Draghi has managed to bring together warring factions from across the political spectrum in Italy, boosting the financial markets and projecting a new image for the country. In many ways, that’s more than its predecessor has done in more than two years.
How did he do it? “He’s Draghi,” said an official who was involved in the talks and asked not to be named. The prestige of the former head of the European Central Bank is so strong, it seems, that suddenly everyone wants a piece.
Draghi’s track record as a policymaker and mediator skills help forge a rare consensus in Italy, with potential opponents reasoning that it is now politically risky not to support him. Thanks to the European Union’s recovery fund, Draghi also has € 209 billion ($ 250 billion) to change the country’s ailing economy – and he doesn’t want to run in elections.
That is also an attractive recipe for markets. Italian stocks and bonds have risen since Draghi accepted a mandate to form a new government. Italy’s 10-year spread versus Germany, a key measure of sovereign risk, fell below 100 basis points to its lowest level in five years last week, and the country’s benchmark stock index rose 1.9% on Monday to a annual highest point. due to profits at banks, which are sensitive to the spread.
“I am sure that Draghi will use his extraordinary experience and strong leadership to make the right things happen,” said Paolo Gentiloni, head of the European Union’s economy, in an interview with the Financial Times. “He knows very well all the bottlenecks, the difficulties and the challenges involved in implementing reforms in Italy.”
The 73-year-old Draghi is expected to complete a second round of talks with parties on Tuesday and he could reveal his top ministers this week.
The stakes couldn’t be higher for Italy. The coronavirus pandemic caused the economy to shrink by about 9% last year, killing more than 90,000 people, while government debt soared towards 160% of production. The ECB’s buy-back program has so far kept funding costs under pressure, but there are questions about how long that can be sustained.
Draghi reaffirmed the possibility of one on Monday common budget for the euro area. That would help protect the Italian economy from the risk of public finances, but it would be difficult for some other euro members who are worried about picking up on Italy’s troubles.
Read more: The virus will force Europe to make a decision about Italy
In Rome most parties seem to be lining up. Many of the political leaders that Draghi has met have done their best to give a compliant face and gently address the issues that saw them collide during Giuseppe Conte’s two tumultuous governments.
Italy is used to bringing in central bankers when politics fails
For many – some officials noted – it is reassuring that Draghi does not appear to have long-term political ambitions of his own. To others, it’s enough that he doesn’t look anything like Mario Monti, a technocrat who once ran the country and who is associated by many voters with the horrors of austerity.
The center-left Democratic Party has pledged to support the ex-ECB chief, with a party official agreeing to say that Draghi is by no means another Monti.
Former Prime Minister Matteo Renzi’s Italy Alive party also considers itself an early financier. While he was instrumental in Conte’s demise, Renzi is not close to the ex-ECB leader and has only interacted with him occasionally, according to a person familiar with Draghi’s thinking.
The Five Star Movement, the biggest force in parliament, is divided, with some members clinging to their anti-establishment roots and others wanting to support Draghi. Five-star lawmakers fear early elections as the party’s support has waned since the vote in 2018.
Arguably the most significant of the ex-ECB head’s recent meetings was with Matteo Salvini of the right-wing League, the party tipped to get the most votes in elections. At his very first meeting with Draghi on Saturday, the right-wing firefighter downplayed his harsh stance on immigration, according to a person present.
Salvini also made atypically pro-European sounds, after years of slamming in Brussels. This could be an opportunity, the party official said, for the League to clean up its image abroad.
Read More: They Betrayed Italy’s Last Leader, But Draghi Needs Them
When the two men met, Salvini turned on the charm, Draghi cut about his favorite football team, and ended the meeting with a political joke. You have attended all these conversations, he said to Draghi, you are not thinking of giving up the mandate now, are you?
Draghi just smiled. And Salvini went out and publicly announced his support for the ex-ECB chief.
– With the assistance of Alessandro Special
(Updates with EU Commissioner Gentiloni in fifth paragraph.)