Chastened Draghi Buys Time to Fix Italy After President Miss
Chastened Draghi Buys Time to Fix Italy After Presidential Chaos
(Bloomberg) -- Mario Draghi’s failed bid to become Italian president has tarnished the aura that helped him keep a fractious coalition in line. But the damage suffered by the country’s main political parties means that the prime minister may still have the leverage to push through his agenda in the final year of his mandate.
After six days of chaotic voting and fraught behind-the-scenes negotiations, Italian lawmakers on Saturday opted to keep Sergio Mattarella as head of state. To break a deadlock and salvage the situation, Draghi himself called the 80-year-old president and persuaded him to put off his much-publicized plans for retirement, according to two people familiar with the situation.
It was a surprising outcome for many as Draghi was considered a top contender.
Although the final twist showed he can still muster the authority to bring his coalition partners into line, the saga exposed the 74-year-old former European central banker’s inexperience in dealing with the political cross-currents in Rome. The extent of the damage he suffered will become clear in the coming weeks as he seeks to push through his plans for rebooting the economy.
“Draghi (clumsily) signaled he was interested in the presidential job and ended up facing a veto by three of the parties that back his executive,” Wolfango Piccoli, co-president at political risk analysts Teneo Intelligence, said in a note. “His standing has been affected.”
Despite the blow to Draghi’s plans, the outcome is set to be welcomed by investors. The risk premium on Italian bonds is likely to narrow Monday as the re-election of Mattarella means political uncertainties will ease, according to Mizuho Securities Co.
The spread on 10-year Italian debt over Germany’s shrank 10 basis points to 123 basis points, after widening to 140 basis points -- the biggest gap since September 2020 -- in the run-up to the presidential election.
For all the dysfunction the process highlighted, Draghi will remain in charge of the euro area’s third-largest economy for another year. That will push back the moment when voters have to decide how Italy should move forward and the uncertainty that an election, due by spring 2023, will create. Mattarella will stay in place until at least that time.
“The balance established by Mattarella and Draghi has been the only one that parties could agree on,” said Giorgia Serughetti, a professor at University of Milan-Bicocca. “This is the best outcome for markets: 100% stability and no earthquakes.”
Since becoming premier a year ago, Draghi has begun to put in place the economic fixes that could help Italy end decades of economic torpor. As an unelected leader he’s struggled to maintain his momentum in recent weeks and had sought the presidency to consolidate his political position.
Italy needs to deliver deep structural reforms to unlock more than 200 billion euros ($223 billion) of European Union funds and parties have been threatening to block that process with partisan fighting ahead of the general elections.
Draghi’s defenders argue that the main coalition parties have been hurt by their failure to find an alternative to Mattarella and so they will be more focused on rebuilding than opposing the prime minister’s plans. Matteo Salvini, head of the center-right League, said the political drama shouldn’t impact the government’s action.
“The government emerges stronger from this,” said Democratic Party leader Enrico Letta. “The coalition could have broken up, but instead it remained united.”
Despite the signs of unity, there’s still a chance that rivals defy Draghi more openly. Salvini, for instance, unsuccessfully floated almost a dozen names during the process only to see them shot down one after the other. One senior lawmaker from the Democratic Party said that the League was angry about how events had played out and that made them an unpredictable partner.
Indeed, Economic Development Minister Giancarlo Giorgetti of the League told Italian news agencies something inevitably has to change in the way the coalition operates.
“Mattarella’s election belies the fact that most political parties have been shattered,” Francesco Galietti of Policy Sonar said.
Italy’s European allies are like to be relieved all the same. Earlier this month, French President Emmanuel Macron described Mattarella and Draghi as “brave and pro-European” and said Europe was lucky to have them.
To avoid a general election during the pandemic, Mattarella tapped Draghi in February to head a national unity government and tasked him with battling both the coronavirus and Italy’s economic crisis. The two leaders see eye-to-eye on most issues.
“But politicians need to refocus on their mission,” said Franceso Clementi, a law professor at Perugia University, “
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