Listening to Italy by Orecchiette

SUPER MARIO?

On 13 February 2021 Mario Draghi, economist and retired central banker became the Prime Minister of Italy. 

Draghi first studied under Federico Caffè, a Keynesian economist at Rome’s Sapienza University. He then moved to the Massachusetts Institute of Technology under Nobel prize winner Franco Modigliani, who said that Draghi “was an exceptional student”. He also spent five years as Governor of The Bank of Italy simultaneously working as Chair of the Financial Stability Board, where he was succeeded by Mark Carney. 

He retired after 8 years as President of the European Central Bank after steering it through the Euro’s financial crisis by doing the often repeated:“whatever it takes”. He is now 73 years old. Draghi has no obvious political affiliations, describing himself in an 2015 interview thus: “My convictions were along what you would call today ideas of liberal socialism,” Fiorella Kostoris Padoa Schioppa who was an MIT student with him, described him as “an American liberal, the same as (US Treasury Secretary Janet) Yellen”. (Politico website) 

The saga of how this highly regarded economist, often called “Super Mario”, came to be offered the post starts with Giuseppe Conte, the previous PM losing a parliamentary vote of confidence. Matteo Renzi, Prime Minister of Italy from 2014-16, and now the leader of Italia Viva (Iv), a tiny centre-left party withdrew his support for the governing coalition and Conte fell. Renzi claimed in a 12 February Financial Times interview, that he was partly responsible for Draghi’s new post of Prime Minister. Renzi speaks good English and he said that his votes had not only toppled Prime Minister Conte’s Government but ushered in Draghi. “The possibility to be led by Mr Draghi was (an incredible) hope. So I decided to risk everything.”. He went on to say that he didn’t care about his low “personal popularity”. His popularity dropped even further, after what was widely seen as a self-interested act of sabotage against the Government at a stressful time with Covid, the Rescue Package from the EU and (the usual) inter-party tensions. Letters to the FT and comment in the US and other foreign press outlets treated Renzi with derision.

Giuseppe Conte had been in his second administration, when his Government fell. The Italian constitution tasked the President, in this case Sergio Mattarella, with the responsibility of forming a new Government. He held talks with party leaders and then asked the Leader of the Lower House to find a political consensus that might usher in a Conte 3. As this failed, Mario Draghi was asked to form a Government. Could it be significant that two La Repubblica articles listed the “decisive mistakes” which led to Conte’s ousting? Was this part of a wider Roman political skullduggery? Orecchiette has no proof whatsoever but offers it as a suggestion. Francesco Merlo wrote in La Repubblica (13 Feb) that Conte will now sink without trace. He argued at length that Conte had become pompous and didn’t listen.  Another criticism  was that “he spoke in the third person like Queen Elizabeth”. On the other hand national opinion polls showed that his popularity was 23 points ahead of the nearest party leader. 

There are two important background points. First is that Mario Draghi had been suggested as a possible candidate to succeed Mattarella when his term of Presidential office finishes next year. Obviously this would be too short a time for Draghi to make an impact as PM. Unless there is an election, the current Parliament will elect the new President after a vote.  Secondly, politicians are posturing and plotting for a general election in 2023 and have a lot invested in not being upstaged by Draghi. 

The current political situation is that on the political centre-right Matteo Salvini’s Lega is the largest national party. It is in a group with Berlusconi’s Forza Italia (Fi) and Georgia Meloni’s Fratelli d’Italia (Fdi). Since the last election Meloni has overtaken Salvini in personal popularity and her (fascist-leaning) party has also surged in the polls. Conte’s Government was headed by a centre-left group plus the Five Star Movement (M5S) in an uneasy coalition. This had a slender numerical majority. The centre-left’s Partito Democratico (PD) is the largest party with Renzi’s tiny Italia Viva (Iv) party taking less than 3% of the national vote. M5S are a numerically significant group but they were riven by tensions well before a very recent split over support for Draghi. Their future is rocky and at one point Giuseppe Conte had been spoken of as a future M5S President. 

Draghi agreed to become Prime Minister designate. He then set out his prorities and appointed a cabinet. Although a 2020 opinion poll showed that only 14% of voters favoured such a “technical government”, as it is called in Italy. But Il Fatto Quotidiano’s poll showed that Draghi immediately became the most popular Italian political figure with a “honeymoon”approval rating of 69%. (20 Feb) Lucrezia Reichlin of The London Business School said that this could be explained by the fact that Italians are scared both by the economic situation and Covid. (FT 8 Feb) The last technical, non-political administration Government of Mario Monte eventually failed, but Draghi has a couple of advantages.  First, Monte was appointed to cut expenditure while Draghi has the EU Recovery Fund to spend. Draghi also has worked closely with Italian politicians, and knows them only too well from his previous posts.    

The enormous EU Recovery Fund is not as munificient as it seems. The total of E209 billion will be granted over 6 years. However E127, or 60%, will come in the form of loans. At the same time Italy must continue to make its annual contribution to the EU’s central funds. Draghi knows that The Recovery Fund cash is contingent on results. The FT (10 Feb) quoted Manfred Weber, head of the EU’s European People’s group: We expect Italy to do its homework….Don’t foget it is an explicit part of the deal. We will stick to it”. Draghi’s ambitious plans for the Reconstruction of the Country intend to curtail the excessive bureaucracy and the slowness of procedures in the finance, administration and judicial fields. He understands that this seemingly intractable schlerosis is a handicap to investment into Italy. The country also has the second highest national debt in the EU, at an amount above the EU’s permitted levels. The EU appears to disregard that particular rule. 

Draghi indicated his methods, priorities and objectives, giving it the encouraging title of “An Italy for our Children”. He quoted Cavour, the first Prime Minister of a united Italy, “Reforms carried out in time will strengthen authority instead of weakening it”. This was the Cavour who had said: “Long live the Republic, down with all tyrants”.

On 18 February Draghi’s Government was subjected to a parliamentary confidence vote. The Lega’s Salvini had not been an immediate supporter: “We’ll see what he says…For us the country comes first” but in the end he voted in favour. His Lega deputy offered a football analogy: “Draghi is a star player like Ronaldo and he mustn’t stay on the bench”. La Repubblica predicted that Salvini would soon start making trouble for Draghi with a headline: “The wolf enters the Government with a hood…” ie: Little Red Riding Hood. Fdi’s Georgia Meloni said from the start that she wouldn’t support the Draghi government. The M5S was split, and 15 of its MPs were later expelled from the Movement for not supporting Draghi. But the vote of confidence was passed with a large majority – yes: 535, no: 56, with 5 abstentions.  

Draghi now faces the unenviable task of uniting the warring and posturing political class in Italy. At the same time, as he said in a recent report to the G30, supporting a free market of ”creative destruction” to stimulate the business climate. (G30, The Group of Thirty is an independent global body comprising leading financiers and academics who aim to understand and explore decisions made in the international financial sector.)

Will Draghi succeed? An FT editorial put it crisply: This is “a once in a generation opportunity to lay the ground for a much improved future for Italy” (18 Feb). Not only Italy’s but the EU’s own future is dependent on a positive outcome. Draghi has always achieved successes in his life but this time he is obviously willing to take an enormous personal risk for the sake of Italy’s future.