Italy Is Starting to Price In Two More Years of Mario Draghi

Mario Draghi has cemented his position in Italy and his political partners are beginning to assume he’ll remain in power until his term ends in 2023.

That is the assessment of half a dozen senior officials from all the main parties and inside the government. The 73-year-old former president of the European Central Bank took the reins four months ago and in that time has overseen the roll-out of a vaccination program and won approval from the European Commission for his plans to spend 191.5 billion euros ($228 billion) of recovery funds.

Italy Is Starting to Price In Two More Years of Mario Draghi

With economic growth set to exceed the government’s forecasts, none of the three main groups supporting Draghi’s technocratic administration can see any benefits in trying to push him aside early, the officials said, asking not to be named discussing private conversations. With no party of his own, they also have the reassurance that he won’t go on past the next election. A spokesman for Draghi declined to comment.

When Draghi was ushered into power, after Giuseppe Conte’s administration collapsed in the depths of the pandemic, some insiders questioned whether his government would last beyond the immediate emergency.

Part of his secret, the officials said, has been keeping a very tight hold on the key decisions, which has allowed him to maintain a delicate balance between the competing interests of his coalition partners. It has also given Draghi space to implement policies that will bear fruit over the longer term and extended the life expectancy of his administration.

After Italian 10-year bond yields charged to a 10-month high in May as the global reflation trade hit fever pitch, they’re now barely higher than levels seen at the start of Draghi’s helm. That’s thanks partly to continued support for the economy pledged by ECB -- and the confidence in Draghi’s government.

Italy Is Starting to Price In Two More Years of Mario Draghi

Machiavellian Politics

Officials now expect him to remain in office after President Sergio Mattarella steps down in February next year. That is a job that the Italian media regularly speculate could be Draghi’s for the taking.

It’s a key date for Italian politics, for sure. But also, a way some politicians thought they could get rid of Draghi: by pushing him upstairs. Indeed, making Draghi head of state was one option that was considered by those jostling to succeed him as prime minister, party officials say.

It’s an important job. But it’s also a poisoned chalice. While largely ceremonial, the president comes into their own at times of instability by deciding who gets to form a government (which happens a lot in Italy). He (or she) is the ultimate guarantor of democracy in a country that lived through a dictatorship.

So whoever replace 79-year-old Mattarella will have a role in deciding what comes next for the European Union’s third-biggest economy and who becomes premier.

Now that Draghi has got the immediate economic and healthcare crisis under control, he’s turning his attention to other problems. As he considers ways to reform public administration, the justice and tax system, he’s realizing it’s going to take time to fix, the officials said.

Big Job

He’s also taken measures to beef up his personal powers, suggesting an intention to stay put for some time yet.

Draghi is creating a new cybersecurity unit that will report to the prime minister’s office, he’s looking at centralizing control over Italy’s defenses against foreign takeovers, he has appointed a new head of the Italian secret services and placed a long-term ally at the helm of Italy’s state bank.

Italy’s messy politics has also created incentives that help Draghi.

Any attempt to trigger a snap election would need the backing of a majority of lawmakers to succeed. Last year’s constitution reform, which cut the number of lawmakers in the next parliament, means that deputies face a higher than usual risk of losing their seats -- and the privileges that go with them.

The status quo benefits many. Matteo Salvini’s League needs time to cement a center-right alliance with Silvio Berlusconi’s Forza Italia which would boost its chances of winning the next election. Berlusconi, who dominated Italian politics for two decades, said Sunday that there is time until the 2023 vote to seal it.

Both the League and the Democratic Party, on the center-left, are calculating that they will benefit as the recovery takes hold and that will drain momentum from the populist Brothers of Italy. The three groups, opinion polls show, have about 20% support.

The Five Star Movement, the biggest force in the current parliament, is the least likely to cause trouble because it’s at risk of annihilation when voters are tested. Its support has collapsed since the 2018 election.

There are two events on the horizon which might disturb Draghi’s equilibrium. The first is the local election due in the fall after being postponed last year because of the pandemic. A better than expected result for the center-right could tempt Salvini and the League to start thinking about how they might engineer a general election.

The bigger test is likely to be the presidential transition in 2022.

Appointing a president requires a two-thirds majority -- that’s one reason why Draghi himself has been so heavily touted as a candidate who would win broad support.

If he wants to dodge that honor, he’ll need to find an alternative.

©2021 Bloomberg L.P.

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