Italy’s Draghi steps down after government implodes

Italian Prime Minister Mario Draghi gave his resignation to the president on Thursday - for the second time in a week - after attempts to resolve the country's latest political crisis failed, kicking off early elections.

Italy's Draghi steps down after government implodes
Mario Draghi arrives at the Quirinale palace in Rome to hand his resignation to President Sergio Mattarella on July 21, 2022. Photo by Andreas SOLARO / AFP

Draghi submitted “his resignation and that of the government he heads,” the office of President Sergio Mattarella said in a brief statement.

The president “took note of this” and the government remained in place to “conduct current business,” the statement added.

Draghi, a former European Central Bank chief, announced the end of his government in a speech to parliament on Thursday morning after parties withdrew their support for the coalition. The president will likely now dissolve parliament and call early elections for September or October, according to political analysts.

Draghi appeared calm and upbeat in his address on Thursday, after tense moments on Wednesday in which the usually softly-spoken 74-year old reprimanded his squabbling coalition, saying was not the time for uncertainty amid a myriad of challenges, from a struggling economy and soaring inflation to the Ukraine war.

“Sometimes even the hearts of central bankers get used,” he joked, thanking parliamentarians “for all the work done in this period”.

TIMELINE: What happens next in Italy’s government crisis?

Draghi essentially confirmed his resignation after he first presented it to the president last Thursday, upon losing the support of the Five Star Movement (M5S), a major party within the coalition.

The president urged Draghi to go back to parliament to attempt to find a way forward – but he lost the support of two more parties as he faced another confidence vote.

Silvio Berlusconi’s Forza Italia, Matteo Salvini’s anti-immigrant League, along with M5S, this time opted to sit out the vote, saying it was impossible to recover the trust lost last week.

Italy’s Prime Minister Mario Draghi after addressing the Senate on July 20th in a last attempt to resolve the government crisis. Photo by Andreas SOLARO / AFP

Draghi’s downfall comes despite polls in the lead up to Wednesday’s drama suggesting most Italians wanted him to stay at the helm until the scheduled general election in May next year.

Salvini, who dined at Berlusconi’s Rome villa after the vote, said election campaigning would begin Thursday, party sources told AGI news agency.

He said Draghi and Italy were “victims of Five Star madness”. Five Star head Giuseppe Conte retorted that the Movement, which began life as a protest party, had been “the target of a political attack. We were forced to the door”.

PROFILE: ‘Super Mario’ Draghi’s path to becoming Italian prime minister

Enrico Letta, head of the centre-left Democratic Party, which voted in support of the prime minister, said toppling the Draghi government meant “going against Italy and Italians’ interests”.

Anxious investors were watching closely as the coalition imploded. Concerns rose that a government collapse would worsen social ills in a period of rampant inflation, delay the budget, threaten EU post-pandemic recovery funds and send jittery markets into a tailspin.

Based on current polls, a rightist alliance led by Giorgia Meloni’s post-fascist Brothers of Italy party and including Forza Italia and the League would comfortably win a snap election — if the three parties can get along.

Such a coalition “would offer a much more disruptive scenario for Italy and the EU” than Draghi’s national unity government, wrote Luigi Scazzieri, senior research fellow at the Centre for European Reform.

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The five biggest challenges facing Italy’s new hard-right government

With Giorgia Meloni set to become the next Italian prime minister, here's a look at the most pressing issues her government will face and how it could deal with them.

The five biggest challenges facing Italy's new hard-right government

After a landslide victory in Sunday’s elections, Italy’s right-wing or centrodestra alliance is set to form a government with a comfortable majority in parliament. 

But while this solid majority should expedite the process of forming a government, it’s still unlikely that this will take less than a month.

TIMELINE: What happens next after Italy’s historic elections?

This slow process might not have been too much of a cause for concern in the past, but Italy today is facing a long list of pressing issues requiring urgent attention.

Here’s a look at the main challenges that the new government will face right out of the starting blocks – and what plans the parties have to deal with them.

Energy crisis

Gas and electricity prices in Italy, and the whole of Europe, have soared in recent months amid a volatile energy market in the wake of Russia’s invasion of Ukraine.

Over the summer, Draghi’s cabinet signed off on a series of aid packages aimed at buffering the shock.

But with energy price rises showing no signs of abating, no doubt further measures to help struggling households and businesses will be needed over the winter. 

KEY POINTS: How do Italy’s main parties plan to deal with the energy crisis?

An extended discount on petrol and diesel at the pump is among measures promised by parties expected to form Italy’s new government. Photo by MIGUEL MEDINA / AFP

So far, the right-wing coalition hasn’t gone into much detail about how they plan to tackle the energy crisis, with parties recently squabbling over whether or not the country’s public debt should be increased to allow for a new round of financial support.

In their joint manifesto, the parties said they will support a European on gas prices and that they aim to make the country “self-sufficient” in terms of energy production – though their proposed strategy of resorting to “clean and safe” nuclear energy is as vague as it is likely to be unpopular in Italy, where the public has twice refused to accept nuclear power.

Furthermore, the centrodestra have promised to extend the current discounts on fuel prices. 

Inflation and cost of living

As the cost of living keeps rising amid soaring inflation – Italy’s inflation rate hit a 37-year high at the end of August – many households across Italy are finding it increasingly harder to make ends meet.

As previous proposals to lower or scrap IVA (sales tax, or VAT) on basic food products have failed to materialise, it’ll be up to the new government to find solutions to the problem. 

In their campaign manifesto, the right-wing coalition said they plan on safeguarding families’ purchasing power by lowering VAT on all essential goods and by easing the tax burden (cuneo fiscale) on families, businesses and self-employed individuals.

On the latter subject, the coalition parties have long been favourable to the introduction of a ‘flat tax’ – a system by which the same tax rate is applied to all taxpayers regardless of their income bracket. 

Even disregarding the fact that such a system would actually clash with article 53 of the Italian Constitution, a flat tax set at 15 percent – that’s the rate proposed by the League’s leader, Matteo Salvini – would cost state coffers around 50 billion euros. 

The coalition hasn’t yet given any details as to where such funds would be found.

A photo taken on August 15, 2022 in Turin shows a campaign poster of the League party leader Matteo Salvini for the upcoming September general elections.

Italy’s league party has campaigned for election on promises of introducing a ‘flat tax’ at 15 percent. Photo by MARCO BERTORELLO / AFP

Employment and pensions

Shortly after taking up office, the new government will be called on to make a decision over the introduction of a national living wage – a policy which left-wing parties have been vocal about for months but that the bloc has opposed so far.

The next cabinet will also have to address the thorny issue of citizens’ income, Italy’s welfare payment for those who are unemployed or in poverty, which has been the object of countless political skirmishes since its introduction in 2019.

EXPLAINED: What will a far-right government mean for Italy?

The coalition has pledged to abolish the citizens’ income and replace it with “more effective social inclusion and job placement measures”, though no details have been given.

Finally, but perhaps most importantly to many in Italy, Meloni and her ministers will face reforming the pension system. 

As of January 1st, 2023, Quota 102 – a stopgap pension law valid for 2022 only – will expire and the dreaded Legge Fornero (Fornero Law) will return. This means retirement will only be possible at 67 years of age or after 43 years of work for men and 42 for women.

Given the relatively short time at its disposal, the new cabinet is expected to draft another ‘temporary’ pension law covering the whole of 2023, thus postponing the pension system reform to 2024.

Recovery fund

After reaching all of the targets set for the first half of 2022, Italy is ready to move on to the next phase of its National Recovery and Resilience Plan (Piano Nazionale di Ripresa e Resilienza, or PNRR), a series of major reforms tied to a EU-wide post-pandemic aid package. 

But since the collapse of Draghi’s cabinet in the middle of summer, little to no progress has been made on the 55 outstanding PNRR objectives for 2022, with the third round of funds – worth a total of 19 billion euros – currently hanging in the balance.

If the new government were to fail to meet the remaining targets by December 31st, Italy, which has received nearly 46 billion euros from the EU so far, would not receive the next round of funding.

READ ALSO: Italy’s building superbonus: How will it change after the election?

In the lead-up to the elections, the right-wing bloc said that they were planning on making “full use” of the 191.5 billion euros Italy has been allocated by the EU. But their manifesto also stated that, in view of “changed conditions and priorities”, the party leaders want to “revise” Italy’s PNRR agreement with Brussels.

No further details were given, and it isn’t yet clear what such a revision would entail.

War in Ukraine

As the war between Ukraine and Russia continues, Italy will have to convene with fellow EU states and NATO members to agree on a common approach to the conflict. 

But the new cabinet’s stance on Russia’s invasion of Ukraine might not be in line with that of its predecessor.

Matteo Salvini, Silvio Berlusconi and Giorgia Meloni at an election rally.

Meloni’s right-wing coalition includes Matteo Salvini’s anti-immigrant League and Forza Italia, led by former premier Silvio Berlusconi. Photo by Andreas SOLARO / AFP

Two of the three key members of Italy’s next government, Matteo Salvini and Silvio Berlusconi, have long been close to Russia. The former, a long-time friend of Putin’s, caused outrage last week by defending Russia’s military aggression, whereas the latter has been critical of EU sanctions against the Kremlin. 

As for the soon-to-be new Italian PM, Meloni has backed European sanctions and the sending of weapons to Kyiv, though her previous support of Russia’s annexation of Crimea in 2014 raises justified doubts regarding the genuineness of her position.

The bloc’s programme emphasises party leaders’ commitment to respecting the “agreements made within the Atlantic Alliance” and supporting Ukraine. 

However, the same manifesto also states that the coalition’s foreign policy will be centred around the “protection of national interests and the defence of the motherland”.