After the resignation of Draghi: Anxiety in the markets about the Italian government crisis

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By Kostas Raptis

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In the summer of 1914, after the assassination of the Austrian crown prince in Sarajevo, the European powers found themselves, trapped in their formulated positions and misjudging the reactions of the others, sleepwalking into a fatal pan-European war conflict that none of them he did not want. Correspondingly, the always brilliant press of Italy has been talking about an “Italian Sarajevo” for the last two 24 hours: that is, about a possible “mess” that, due to miscalculation by the parties, threatens to lead to a “political accident” – of which, however, the implications could also be pan-European and not limited to the domestic scene.

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Already, Italian bond yields and German bond spreads have risen as markets nervously face the government crisis that has erupted in the Eurozone’s third-largest (and most vulnerable) economy.

The “accident” does not have to occur in the immediate future. After all, the complex “choreographies” of the Italian parties, which in the midst of intense political “drama” end up in just another intimate compromise, is a very Italian affair. And the iconic phrase “everything must change in order for nothing to change” was also written in Italian – in Tomasi di Lampedusa’s “Cheetah”.

But anyway, the future… doesn’t last long. Italy has already entered the last year of the four-year parliamentary term and the date with the ballot box is not long. Efforts to rescue or replace the Draghi government are simply about managing the next winter season (extremely critical of course amid the geopolitical, energy and economic crisis), but against the backdrop of increasing uncertainty beyond.

Current political affiliations have an expiration date, since the opposition far-right party of the Brothers of Italy under Giorgia Meloni has won the polls and no political figure has the weight of Mario Draghi, who has emerged as a Paraclete in the fragmented Italian political life, with “special mission” to promote reforms that no individual party would want to shoulder.

The same prime minister chose yesterday evening, after the five-star co-ruling party abstained from voting in the Senate on a bill to support households, to submit his resignation to the President of the Italian Republic, Sergio Mattarella, which did not happen. acceptable. Thus, the governing coalition is obliged to request a vote of confidence from the Parliament next Wednesday, with the question of whether all the co-ruling parties, as well as the prime minister himself, will continue their common path.

Draghi, 74, is not a career politician and has every incentive to jump ship if he finds his own conditions to govern effectively are not met. Against this background, the resignation can also be interpreted as blackmail in order to confirm these terms and end the internal opposition from the Five Star Movement of former Prime Minister Giuseppe Conte. The latest leaks, however, want Draghi’s resignation decision to be irreversible.

It is recalled that the Draghi government rests on a broad majority, which includes from the populist Five Star movement and the far-right League of Mario Salvini to the European center-left of the Democratic Party and the Forza Italia of the indomitable Silvio Berlusconi. All of them are united by the desire to participate in the district of power, and above all by the fear of Meloni, and they have no reason to hasten the electoral contest.

Moreover, as a former president of the ECB, Draghi is a confidant for Brussels, Frankfurt and Berlin, but also a potential ally for Emmanuel Macron in his pursuit of more permanent arrangements to deepen European economic integration. And Italy, as the biggest recipient, is the country in which the success of the Development Fund is judged, but it is also the big headache of the ECB, to the extent that inflationary pressures impose monetary tightening, which in turn brings back to the foreground the threat of the Italian debt.

It is also recalled that Draghi has been extremely “military” (at least in words) in the case of defending Ukraine and taking measures against Russia, such as the proposed establishment of a “ceiling” on the price of imported Russian hydrocarbons. It is enough to consider that before and before Wednesday’s vote of confidence, Draghi will visit Algeria, in search of new sources of natural gas supply.

His departure from the limelight, shortly after the fall of Boris Johnson in Britain and the political mutilation of Macron in the French parliamentary elections, is indicative of the weakening of European leadership.

The pressure on the Five Stars – Salvini’s dilemma

Already led by Silvio Berlusconi, the majority forces emphasize that they are looking forward to a “Draghi 2” government. But “accident” should not be ruled out at all.

The scenarios that will therefore be decided by Wednesday start from the restart of the governing coalition under the same or smaller support base, with Draghi or the veteran Giuliano Amato as prime minister, and reach the announcement of early elections in the autumn – i.e. the season which the country should normally prepare its new Budget. It is this last element that fuels calls to definitely extend the life of this Parliament.

The Five Stars are tempted by the prospect of going into opposition, as flagship measures for the same, such as the introduction of a guaranteed minimum income, are not accepted by Draghi. Moreover, they are emerging from their own internal party crisis, as the wing led by Foreign Minister Luigi di Maio left the party, forming the “Together for the Future” formation (reportedly encouraged by Draghi) and courting the poll-boosting Democratic Party for the creation of a center-left broad front.

The equally awkward Salvini, who is losing intra-party competition with Meloni, says he will make his own stay in the governing coalition dependent on that of Five Star. He has, after all, made sure to make his presence visible, raising disagreements within the majority on issues such as the proposed automatic naturalization of immigrant children who complete five years of schooling in the Italian education system. It is, therefore, between a rock and a hard place and it cannot be ruled out that it will be the catalyst for any developments.

Source: Capital

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