July 27, 2021

Former ECB head Mario Draghi asked to save Italy

Mario Draghi, eurozone saviour, now called to Italy’s side

Former ECB head Mario Draghi asked to save Italy

Former ECB head Mario Draghi asked to save Italy

Mario Draghi became famous for saving the euro under the yoke of the sovereign debt crisis. Now he is asked to help his country.

Former President of the European Central Bank meets with the President of Italy Sergio Mattarella (Sergio Mattarella) Wednesday lunchtime, which Mario Draghi (Mario Draghi) asked to form a technocratic government and resolve the political crisis in Rome.

The recent political chaos in Italy began when a small party pulled out of support for a fragile coalition government. This meant that the pro-European cabinet lost the necessary working majority in the Italian parliament, increasing the likelihood of early elections during a severe economic and health crisis..

Draghi accepted the assignment given to him by the president, stating that he would return after figuring out if he could do it. He also noted the seriousness of the situation in which his country is currently located..

«I will have great respect for parliament, the expression of the will of the people», – Draghi said, according to the agency’s translation «Reuters».

Mattarella tried to break the impasse by consulting various political leaders. However, these negotiations did not bring a working majority, and the country’s president is trying to avoid new elections..

Polls show the anti-immigration party «League» (Lega) will receive the most votes in the elections and could potentially form an alliance with the far-right party «Brothers of Italy» (Brothers of Italy).

Draghi has been president of the ECB for eight years and has been at the helm at one of the most poignant and dramatic moments in the history of the eurozone. The sovereign debt crisis has shed light on how weak public finances have been in some countries and raised fears that the 19-member region will disintegrate.

As tensions escalated, Draghi gave a speech in London in 2012 to reassure market participants that the ECB will do «everything possible» to maintain the stability of the eurozone.

His words reassured investors and at the time actually saved the eurozone. Draghi will then take monetary policy into uncharted territory in the region by imposing negative interest rates and quantitative easing. Both policy instruments are still valid.

The possibility of Draghi becoming Italy’s new prime minister has been well received in the financial markets.

Italian bond yields fell Wednesday morning, lowering borrowing costs for the Italian government and indicating that investors were more confident about Italy..

The Italian Major Index (FTSE MIB) also traded more than 2% higher in early trading on Wednesday, and the euro strengthened slightly on Tuesday evening following media reports of a meeting between Mattarella and Draghi..

Italian bank stocks were among the top performers in Europe on Wednesday morning, with Intesa Sanpaolo, Banco BPM and UniCredit surging around 5%.

However, if legislators approve of Draghi’s appointment, he faces a very difficult Job.

«Parliament remains deeply divided, and the new government will have to rely on a diverse and fragmented coalition that has nothing to do with a common ideology or political platform. Divisive and politically costly reforms will remain a challenge», – says the note Federico Santi (Federico Santi), Senior Analyst, Eurasia Group.

Mattarella made it clear that the new government’s priority would be to withdraw Italy from of the coronavirus pandemic crisis. The country was one of the hardest hit by the coronavirus in Europe.

To date, Italy has recorded over 2.5 million cases of Covid-19 infection and 89,344 deaths, according to data compiled by Johns Hopkins University..

The new cabinet will have to draw up a plan on how to invest future European funds, and present how this will reform the economy, which is precondition for receiving money from the EU.

«Past experience shows that technocratic governments during a national emergency can make rapid progress during the first 6–12 months, but after that their political capital and support in parliament quickly weaken», – said Santi.