Former ECB Chief Mario Draghi Tapped to Lead Italy Out of Its Crisis

Former European Central Bank President Mario Draghi has been tapped to become Italy’s next prime minister with a broad mandate to try and steer the virus-battered country out of its worst recession since the end of World War II.

President Sergio Mattarella will meet Draghi at midday on Wednesday after two rounds of talks failed to seal a deal among parties for a new government led by Giuseppe Conte, who had hoped to return to lead his third administration. Instead, the president is poised to formally ask Draghi to try to form a government.

Former ECB Chief Mario Draghi Tapped to Lead Italy Out of Its Crisis

Draghi will be given complete freedom over the make-up of his administration, as well as on seeking alliances between political parties, according to an official who asked not to be named discussing confidential deliberations. The broad remit signals Mattarella’s irritation at leaders for triggering a political crisis and failing to resolve it, and his determination to smooth the path ahead for Draghi.

Italy’s 10-year yield spread over Germany, a key gauge of risk, dropped to its lowest since 2016 and was close to falling below the psychological threshold of 100 basis points. The FTSE MIB index of shares climbed 2.3%, the best performer among major equity markets in Europe.

Former ECB Chief Mario Draghi Tapped to Lead Italy Out of Its Crisis

Mattarella, who’s responsible for naming a premier-designate, had earlier appealed to political parties to give the strongest support possible to a high-profile figure. He warned that Italy could not afford early elections during a pandemic and invoked the need to agree on the European Union’s recovery fund.

The appointment of a crisis-fighter of Draghi’s caliber could put an end to the political intrigue that threatened to make Italy ungovernable. But he would need to gain a majority in both houses of parliament, and this may not prove easy as some parties have said they won’t back him.

The Five Star Movement, the biggest force in parliament, swiftly refused to support a Draghi-led government. Vito Crimi, political leader of the group born as an anti-establishment force, said past administrations led by technocrats had created “extremely negative consequences for Italian citizens.”

The fractious Five Star could, however, ultimately be divided over the issue, with several lawmakers possibly choosing to back Draghi.

If he becomes the next premier, Draghi’s challenge will be to stake out an enduring path to recovery for an economy that has barely grown in decades. He will also need to deploy all his diplomatic skills to navigate a complex political landscape rife with infighting.

Super Mario

A trained economist, Draghi is credited with shoring up the euro at the height of the debt crisis in 2012 with his “Whatever it takes” speech. He also started the quantitative-easing program of sovereign debt purchases which was subsequently expanded to become a key tool in supporting the European economy during the pandemic.

Draghi ended his eight years at the helm of the ECB in 2019, and ever since he’s kept pundits guessing on whether he’d consider a role in Italian politics.

Former ECB Chief Mario Draghi Tapped to Lead Italy Out of Its Crisis

The latest development appears to spell the end for Conte’s political career -- at least for now. The outgoing premier, who has no political party of his own, may decide to set up a new grouping, given his strong poll numbers.

Conte’s ruling coalition was brought down by Matteo Renzi, himself a former premier. The two men reportedly dislike each other and this outcome represents a victory for Renzi.

In public, Renzi had kept Italy guessing on whether he would agree to Conte’s return, saying only that he wouldn’t veto anyone as the next premier. But in private, he floated Draghi’s name, according to officials who asked not to be named discussing confidential deliberations.

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