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ITALIAN POLITICS

Anger and astonishment in Italy after PM Draghi’s resignation attempt

Italy was reeling on Friday after the president refused to accept Prime Minister Mario Draghi's resignation, making Italy's latest political crisis even more unpredictable.

Italy's Prime Minister Mario Draghi tried to tender his resignation on Thursday, but was asked by President Sergio Mattarella to stay.
Italy's Prime Minister Mario Draghi tried to tender his resignation on Thursday, but was asked by President Sergio Mattarella to stay. Photo by Filippo MONTEFORTE / AFP.

On Friday morning, Italy woke to political turmoil amid an unprecedented government crisis that has put Mario Draghi’s future as prime minister in doubt and raised the spectre of snap elections.

“Draghi resigns, Italy risks chaos,” read a headline in newspaper La Stampa.

Draghi had attempted to resign on Thursday night, following through on his promise to do after losing the support of the Five Star Movement, a major party within his coalition government.

But President Sergio Mattarella, who acts as kingmaker in moments of political crisis, refused to accept the prime minister’s resignation – instead urging Draghi to address parliament next week in an attempt to find a way forward.

READ ALSO: Italy’s president refuses to accept PM Draghi’s resignation

Until then, the government remains in limbo with no clear path forward.

Industry heads said they were “speechless” at the “show of total irresponsibility” by the government.

“We are watching with total incredulity the political developments that clearly ignore the commitments that the government has taken on… with the emergency of the international situation and the lead role the Italian government has in Europe and in NATO,” Carlo Bonomi, president of industrial confederation Confindustria, told news agency Ansa.

European Economy Commissioner Paolo Gentiloni said he was following the situation in Italy with “concerned astonishment”.

“When it comes to political developments in Italy, I often talk about rough waters,” former Italian premier Gentiloni told Ansa.

“In these waters made rough by war, high inflation, energy risks and geopolitical tensions, stability has a value in itself.

READ ALSO: Four scenarios: What happens next in Italy’s government crisis?

It remains unclear how the current crisis will play out, with several options from a cabinet reshuffle to snap elections put forward by political analysts.

“We have a very open-ended situation, the pressure is going up, there’s lots of diplomatic work taking place behind the scenes and we still have four days to go,” Policy Sonar analyst Francesco Galietti told AFP.

Although political crises are nothing new in Italy, “this one is unprecedented because geopolitical factors are taking precedent”, Galietti said, citing tensions with Russia over its war in Ukraine. 

Politicians and experts view the possibility of Draghi continuing in his mandate as extremely fraught, even though he technically has the numbers to survive a confidence vote with or without Five Star.

“The Draghi government and the coalition that supported it must continue, but right now I see it as very, very difficult,” former Five Star leader and current Foreign Minister Luigi Di Maio told RTL 102.5 radio on Friday.

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ITALIAN POLITICS

What does Italy’s latest political crisis mean for the economy?

The potential collapse of Italy's government has thrown the post-pandemic recovery plan into doubt and brought back fears of a debt crisis - but how severe will the impact on the economy really be?

What does Italy's latest political crisis mean for the economy?

As Italy was plunged into a political crisis on Thursday, shockwaves immediately rippled through the markets: Milan’s stock exchange was down more than three percent over fears Prime Minister Mario Draghi’s coalition government could come crashing down and spark snap elections.

All eyes are now on borrowing costs after the ‘spread’ – the closely watched gap between German and Italian 10-year interest rates – widened further on Friday following Draghi’s attempted resignation amid the deepening crisis.

READ ALSO: Four scenarios: What happens next in Italy’s government crisis?

But President Sergio Mattarella refused to accept the prime minister’s resignation – instead urging Draghi to address parliament on Wednesday in an attempt to find a way forward.

The country now faces prolonged uncertainty, with no clear path forward.

“Any signal that Draghi would not survive the 2023 parliamentary elections, or even leave office before, is a cause for concern for the markets,” Gilles Moec, chief economist at the Axa group, told AFP.

Although political crises are nothing new in Italy, Galietti said “this one is unprecedented” because of geopolitical factors, citing tensions with Russia over its invasion of Ukraine.

Even without the current political instability, Italy’s economic outlook is suffering due to “the size of its debt, its low growth rate and its strong dependence on Russian gas,” Moec said.

Italy's Prime Minister Mario Draghi tried to tender his resignation on Thursday, but was asked by President Sergio Mattarella to stay.

Italy’s Prime Minister Mario Draghi tried to tender his resignation on Thursday, but was asked by President Sergio Mattarella to stay. Photo by Filippo MONTEFORTE / AFP.

Italy has a mammoth debt of over 2.7 trillion euros or some 150 percent of GDP – the highest in the eurozone after Greece – though the debt-GDP ratio is beginning to shrink.

The country has long lagged behind others in the eurozone: between 1999 and 2019, the economy grew by just 7.9 percent compared to 30.2 percent in Germany, 32.4 percent in France and 43.6 percent in Spain.

Italy’s gross domestic product increased 6.6 by percent in 2021, after a 2020 slump due to the coronavirus pandemic.

The Bank of Italy expects GDP to increase by 3.2 percent in 2022 – but that figure could drop below one percent if Russian gas supplies are cut off over the war in Ukraine.

READ ALSO: Italian PM says Russia’s excuses for gas cut are ‘lies’ as shortfall continues

After former European Central Bank chief “Super Mario” became prime minister back in February 2021, Italy’s 10-year borrowing rate fell below 0.5 percent.

It has now climbed to 3.4 percent.

Italy is counting on the European recovery fund to boost growth. It’s the biggest beneficiary of all member states, set to receive 191.5 billion euros if it ticks off a series of EU-requested reforms aimed at, among other things, improving creaking infrastructure and preventing large-scale tax evasion.

Draghi’s departure, however, would put those reforms at risk.

More than a thousand Italian mayors signed a petition on Sunday pleading with Draghi to stay on, saying the post-pandemic recovery plan required stability.

“Our cities… cannot afford a crisis today that means immobilism and division,” the petition said.

“We need stability, certainty and consistency in order to continue the transformation of our cities… Because without the rebirth of these, Italy will not be reborn either.”

But with Draghi’s grand coalition in disarray, the chances the country will head to snap elections after the summer are high.

READ ALSO: ‘We need stability’: Hundreds of Italian mayors plead with Draghi to stay

A far-right or populist win at the polls would weigh significantly on the spread, just as it did in 2018, when Matteo Salvini’s anti-immigrant League joined forces with the once anti-establishment Five Star Movement.

Public finances are however unlikely to be derailed as in the 2012 crisis, economic experts said.

“Interest rates would have to rise very sharply and durably for us to begin to observe solvency problems,” Natixis economist Jesus Castillo told AFP.

Italy’s bonds last on average over seven years, which means the rise in rates will not immediately be reflected in debt.

What’s more, banks are in better shape now than in 2012.

“Economic fundamentals remain compatible with long-term debt sustainability,” Castillo said.

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