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Mario Draghi dons the costume of Italy's saviour




The Italian President entrusted Mario Draghi with the task of bringing Italy out of the political and economic crisis (photo: Italian Presidency)
The Italian President entrusted Mario Draghi with the task of bringing Italy out of the political and economic crisis (photo: Italian Presidency)
ITALY. Italian President Sergio Mattarella asked Mario Draghi (73) on Wednesday 3 February 2021 to form the new Italian government. The political crisis has been rumbling in the country since the resignation of Giuseppe Conte from the presidency of the Council of Ministers after he was outvoted in Parliament at the end of January 2021 following the defection of his ally in the ruling coalition Matteo Renzi (former prime minister from 2014 to 2016).

Former governor of the Bank of Italy (2006 to 2011) before becoming president of the European Central Bank (2011 to 2019), replaced by Christine Lagarde in July 2019, Mario Draghi was previously vice-president for Europe at Goldman Sachs (2002 to 2005). With this appointment as Prime Minister, he inherits the role of President of the G20 - a group of the world's nineteen largest economic powers plus the European Union - devolved to Italy in 2020.

Mario Draghi has long embodied the hard line of austerity with his famous phrase, "countries with high debts and deficits should understand that they have long since lost sovereignty over their economic policies in a globalised world", launched in 2012. In the summer of the same year, he had been described as the saviour of the eurozone by helping from his ECB chair to calm the financial markets in the eurozone. He was named "Personality of the Year" by the Financial Times. It is now up to the man whom the press at the time called "Super Mario" to put on this suit to save Italy, taking into account the Covid-19 variable that will force him to deal with the current circumstances.

A resilience plan to be validated in Brussels


As Sergio Mattarella pointed out, "there are now two possibilities: to immediately give substance to a new government capable of dealing with the current serious emergencies or to organise early elections". Faced with the current health, political and economic chaos, Mario Draghi will therefore have to quickly set up a combat team, independent of the political parties. This government will have to put in place the necessary measures, but also present a plan for the use of European funds at the end of April 2021 in Brussels. This issue is at the root of the break-up of the government coalition.

Overall Rome should receive €209 billion from the European Recovery Fund (out of the €750 billion available) created to finance national resilience programmes in all member states. Italy's programme was estimated at €223 billion in January 2021 by Giuseppe Conte. The now former President of the Council of Ministers planned to spend 70% of this sum on investments and 21% on tax incentives and other bonuses. 144.2 bn are expected to finance new projects and €65.7 bn to accelerate the implementation of existing projects. "The Council of Ministers has validated the largest investment plan ever undertaken in Italy", rejoiced Italian Finance Minister Roberto Gualtieri at the time.

A debt at 158% of GDP

On the strength of his experience at the ECB, Mario Draghi will have to solve the problem of the Italian debt (photo: F. Dubessy)
On the strength of his experience at the ECB, Mario Draghi will have to solve the problem of the Italian debt (photo: F. Dubessy)
Italy is also the country with the largest amount of funding under the SURE (Support to mitigate unemployment risks in emergency) instrument set up by the European Commission. On Tuesday 2 February 2021, Rome received a new envelope of €4.45 billion (out of the €14 billion released for 9 Member States). This loan on exceptional terms from the fourth social bond issue is intended to cover the costs directly linked to the financing of national short-time working schemes and other similar measures put in place in response to the coronavirus pandemic. Of the total €90.3 billion granted to eighteen Member States under SURE over 2020 and 2021, Italy will eventually receive €27.4 billion and will therefore be the first beneficiary.

Mario Draghi will have to deal with a plethora of major issues. Starting with the negotiations on debt restructuring and deficit reduction.

The future technical government of the third largest economy in the euro zone has a lot of work to do. Its economy was the first to be affected in Europe (confined as of March 2020) by the pandemic and its GDP will post a -8.9% of its GDP in 2020. And the second wave has already ruined hopes of a recovery in 2021. Even if, since 1 February 2021 and in most Italian regions, bars and restaurants (like museums) have been able to reopen with time constraints.

At the end of 2020, Italy's cumulative debt reached €2,600 billion (158% of GDP). Only Greece (over 200% of GDP according to the IMF) has a higher ratio among member states and one of the highest in the world.

 

Frédéric Dubessy


Thursday, February 4th 2021



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