Mario Draghi Is the Best Person for the Worst Job: Governing Italy

Italy’s president has summoned Mario Draghi to ask him to lead the country, a task akin to cleaning the Augean stables. 

There are many reasons for skepticism: The nation is in the middle of a health and economic crisis. So are most places right now, but Italy is one of the most fragile members of the European Union because of its meager growth and towering public debt. The political parties in parliament have shown again their inability to lead in a crisis, and any prime minister would struggle to bring them to heel. Draghi would be the ultimate technocratic appointment, and such administrations have a patchy record in Rome, often failing to win enough support for lasting and meaningful reform.

And yet, if there’s one man who could extract Italy from its mess, it is Draghi. The former European Central Bank president has an unrivalled record in crisis management, having steered Italy and the euro zone through some of the worst turmoil of the past three decades.

In the early 1990s, as director general of Italy’s treasury, he navigated Europe’s Exchange Rate Mechanism crisis, rescued Rome from a likely default and spearheaded a vast privatization program — all of this while Italy’s “Clean Hands” bribery scandal swept away a generation of politicians.

Twenty years later he rescued the euro from possible collapse by telling financial markets the ECB was ready to do “whatever it takes” to protect its integrity. In doing so, he had to jettison the ECB’s traditional conservatism, win political support in Germany and, above all, gain the trust of investors, who stopped betting against the single currency without the central bank having to buy a single government bond.

These episodes show Draghi has a combination of gifts lacked by other Italian technocrats: a deep understanding of his country’s and the euro zone’s economic problems, as well as courage and political smarts. This still might not be enough to fix Italy, but you won’t find a more qualified candidate — even if this is an unelected one.

Italy’s crisis is structural, not cyclical. The pandemic has exposed brutally the failings of governments across the Western world, and Rome has been no exception. Italy had to tackle the worst emergency of the postwar era with a deeply divided and unprepared political class. Giuseppe Conte, the departing prime minister, was an obscure academic with no previous governing experience before leading an unlikely succession of unruly coalitions.

The economy is in dire need of change. Italy has to shake up its bureaucracy, reform its judicial system, cut wasteful subsidies and invest more in infrastructure, research and education. Unforgivably, the political parties have only paid lip service to tackling these profound problems. Italy will be the largest gross beneficiary of the EU’s 750 billion-euro ($903 billion) joint pandemic fund, but it has struggled to design a plan for how to spend this money and how to make the accompanying reforms.

As Italy’s preeminent economic mind, Draghi knows these troubles all too well. The question is whether he’ll be able to do much about them. By accepting President Sergio Mattarella’s offer, his immediate task will be to put together a stable coalition for a technocratic administration.

The populist Five Star Movement, Italy’s largest parliamentary party, looks set to oppose a Draghi government, although its shaky unity will be tested. The center-left Democratic Party and the centrist Italy Alive will probably support the appointment, so much will depend on what the right decides to do. The hard-right League and Brothers of Italy need to decide whether to push for new elections, or accept a transitional government. Matteo Salvini, the League’s leader, is keeping his door open.

The challenge of governing will be even more daunting. Mattarella has hinted that he wants a fully technocratic administration, to let Draghi pick from the deepest talent pool. However, any prime minister needs to pass laws through parliament, which will be mightily difficult without backing from the parties. As the next national election — due in 2023 — gets closer, politicians will want to take aim at any government as they position themselves with voters. Mario Monti, the technocrat prime minister who led Italy during the sovereign debt crisis, started with strong parliamentary support only to see it crumble as he tried to pass an unpopular labor market reform.

Draghi knows these limits all too well. But his career has been an exercise in addressing the failings of politicians. For the sake of Italy, one must hope he can repeat this feat yet one more time.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Ferdinando Giugliano writes columns on European economics for Bloomberg Opinion. He is also an economics columnist for La Repubblica and was a member of the editorial board of the Financial Times.

©2021 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.