Draghi Keeps Italy Guessing on Which Super Mario Will Emerge

Mario Draghi’s yet-to-be fulfilled leadership of Italy’s next government is keeping people guessing about how much he will draw upon his prior career roles when in office.

Within the country, the likely next premier is often remembered as the man who oversaw its biggest privatizations -- a proactive financier applying market solutions to tough problems. Elsewhere, particularly in Germany, Draghi is known as the central banker who threw clout and money at Europe’s sovereign-debt crisis to shore up its common currency.

Draghi Keeps Italy Guessing on Which Super Mario Will Emerge

Those competing perceptions, of a market-friendly banker or dirigiste savior of the euro, loom large over his push to form a technocratic government that can stabilize Italy’s finances and productively invest more than 209 billion euros ($252 billion) in forthcoming European Union aid. So which Draghi will Italy get?

“Probably a bit of both, as he’s first and foremost a pragmatist,” said Alessandro Aresu, a political adviser to past Italian governments. “In his whole career, he has successfully and astutely navigated through Italian, and then European, politics.”

What Bloomberg Economics Says...

“He’s a great choice to steer the economy to recovery, but is unlikely to solve Italy’s long-term problems without a democratic mandate.”

--David Powell. For full note, click here

Italy’s debt markets have been on a whirlwind rally on expectations that Draghi, whose pledge to do “whatever it takes” tamed debt turmoil in 2012, will stave off the country’s political crisis this time. Ten-year yields fell to a record low of 0.5% Tuesday, while the spread over German bonds is at its lowest level in over five years.

The 73-year-old Draghi has a long history of working in public administration. His longest stint in a job was a decade at the Italian Treasury, where he arrived in 1991 during a crisis that had upended the country’s political system.

Draghi survived 10 governments, ranging from former tycoon Silvio Berlusconi’s first premiership to administrations of the left, or led by technocrats. This was when he instigated the privatization of state companies, welcomed by some as a solution breeding efficiency and cutting debt, and condemned by others as a sell-off of Italy’s crown jewels.

Reinforcing his image as a man of finance was a stint that followed at Goldman Sachs Group Inc., which ended when he was appointed Bank of Italy governor in 2005. The turning point that bred the alternative impression of an interventionist was then Draghi’s nomination in 2011 to the presidency of the European Central Bank.

Draghi Keeps Italy Guessing on Which Super Mario Will Emerge

Whatever It Took

While there, he brought market speculators to heel and initiated the quantitative easing that is now used as a tool to support the European economy during the pandemic. In turn, he upset some countries with his willingness to deploy cash liberally in a system weakened by indebted nations like Italy.

In tune with that, Draghi’s academic background often leads observers to speculate that he might be a neo-Keynesian at heart, eager to intervene and spend to shore up growth.

He studied economics in Rome under Federico Caffe, sometimes considered Italy’s foremost follower of the British economist John Maynard Keynes. He later took a doctorate at the Massachusetts Institute of Technology, supervized by Nobel prizewinner Franco Modigliani, whose own work took some inspiration from Keynes.

Perhaps also relevant is Draghi’s Catholicism, an attribute evoking conviction and public service, not least in Rome. As a teen he attended a prestigious school in the city run by the devout Jesuit order and more recently, Pope Francis, another Jesuit, appointed him to a Vatican think tank that tackles issues ranging from human trafficking to debt relief.

Draghi Keeps Italy Guessing on Which Super Mario Will Emerge

Italians will find out soon enough which Draghi their next premier will be, when he starts to name the people who will form the government. The key post is likely to be the finance minister, with the Bank of Italy’s Daniele Franco emerging as a possibility.

Whoever he chooses, he’ll take on one of the biggest challenges the country has faced since World War II, with a debt load at almost 160% of output, longstanding economic malaise, and a raging pandemic still to be tamed.

Lorenzo Codogno, who served as chief economist at the Italian Treasury when Draghi was leading the Bank of Italy, agrees with Aresu that the future prime minister is ultimately a pragmatist at heart rather than someone that any particular label can be attached to.

Draghi Keeps Italy Guessing on Which Super Mario Will Emerge

“He’s a man of few words -- very focused and results-oriented,” said Codogno, founder of LC Macro Advisers Ltd. “He will do whatever is most effective, and Italy right now needs that. We need delivery.”

Aresu meanwhile points to one of the conclusions in Draghi’s own doctoral work for clues on the philosophy of the man poised to become Italy’s next premier.

“If one opts for a short-term course of stabilization, the long term optimum will never be achieved,” Draghi wrote.

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