Draghi’s Finance Chief Made Name Keeping Italian Parties In Line
(Bloomberg) -- When Mario Draghi needed someone to convince Prime Minister Silvio Berlusconi that Italy needed to reform during the euro crisis, he sent Daniele Franco, a longtime confidante from the Bank of Italy.
A decade later, Draghi himself is in charge of rebuilding the Italian economy after Covid-19 and he has turned to 67-year-old Franco for help once again. Draghi picked the former state comptroller to lead his finance ministry as he prepares to formally take office as premier this week.
“Draghi trusts Franco a lot,” said Francesco Galietti, founder of Policy Sonar, a Rome-based political risk consultancy. “He knows the inner workings of this huge ministry very well. He is mild mannered but can wield an iron fist and he definitely commands the respect of his senior directors.”
Franco’s relationship with Draghi and his ability to run the ministry will be key to managing an economy that has been battered by the pandemic, with debt approaching 160% of output and growth still stunted by continued lockdowns and a stuttering vaccination campaign.
He’ll be critical in helping Draghi prove to Italy’s European partners that their faith in the country was not misplaced when they offered up 209 billion euros ($250 billion) in grants and loans in the next few years to permanently boost growth.
Like his new boss the former European Central Bank president, Franco is known for his discretion. He was born near Belluno in the Italian Alps, earned a degree in political science from the University of Padua and obtained a masters in Economics from the University of York in northern England.
He started at the Bank of Italy in 1979, rising through the ranks to become senior deputy governor last year. During Draghi’s years in charge of the Italian central bank, Franco was head of the structural economic analysis department. He has written extensively about public spending, social welfare, European tax rules, budget policy, income distribution, fiscal federalism and taxation of financial assets.
In 2011, just a few months before Draghi moved on to the ECB, Italy came under intense pressure from bond investors to rein in its spending and fix up the economy. The ECB started buying bonds to calm the market while drafting a letter for Berlusconi demanding sweeping reforms.
When Berlusconi got wind that the letter was on its way, Draghi tapped Franco to explain its contents to a minister close to Berlusconi and persuade him to take his medicine.
What Franco is most known for in Italy, however, is his stint as state comptroller when he repeatedly crossed swords with the country’s spendthrift politicians.
He famously refused to sign off on a budget law for several days under Matteo Renzi’s center-left government because it didn’t include funding for his policy plans. He did it again in 2018, during Giuseppe Conte’s first government and was violently attacked by ruling coalition party Five Star for not approving their plans for a citizens’ income.
Holding the Line
Audio files leaked to the Italian press showed Conte’s spokesman Rocco Casalino attacking Franco and his staff with profanities and vowing to push them out unless the measure was passed. The clash burnished his reputation as a public servant with integrity.
People who know him say he is uncomfortable in the limelight and prefers to put the focus on the institution he works for instead.
His appointment at the Treasury constitutes a victory for Draghi, who had to reach compromises with parties from across the political spectrum -- including Five Star and Berlusconi’s Forza Italia -- to form a national unity government.
The cabinet will be a mix of politicians and technocrats was carefully engineered by Draghi and Italy’s President Sergio Mattarella to try to ensure both political balance and governability. It will face confidence votes in both houses of Parliament in the coming days.
The new finance minister will inherit an economy that shrank 8.9% last year and is seen growing only about 3.5% this year, by the Bank of Italy. The public finances have been strained by over 130 billion euros in stimulus measures as the last government fought to protect businesses and families from the pandemic, and more may be needed as lockdowns continue.
So far, European Central Bank bond buying has kept borrowing costs low and debt manageable, and Draghi’s appointment was celebrated by markets. The spread between yields on Italian 10-year government bonds and comparable German debt, a key measure of sovereign risk, has narrowed to its lowest level in more than five years.
Read More: Italy Bond Prices Imply Smooth Liftoff for Draghi
Franco and Draghi now need to take advantage of that goodwill to pass needed reforms and use recovery fund money on projects that will permanently boost growth. That means keeping a united front and resisting political pressure from parties to squander the money on pet projects.
Last November, in a speech in Rome, Franco was already in step with his new boss when he outlined a reform plan which included making it easier for companies to grow in size, streamlining the public sector and helping the South of the country to grow faster. He emphasized improving the quality of education, increasing private and public investments, and giving more funds for research.
“Draghi and Franco will have to convince the EU that they are able to come up with a plan that tackles Italy’s main weaknesses and then manage to enlist the cooperation of a very heterogeneous parliament,” said Rosamaria Bitetti, an economist and lecturer at Luiss University in Rome.
“The first task seems easier than the second,” she added.
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