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Feb. 3, 2021, 3:41 p.m. EST

Markets cheer prospects of Mario Draghi as Italian prime minister

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By Pierre Briançon

The former president of the European Central Bank was invited on Wednesday by Italian President Sergio Mattarella to form a new government, after the resignation of Giuseppe Conte as prime minister last week.

  • Mattarella chose the option of a “technical” government over that of calling for general elections, which risked throwing Italian politics into renewed chaos in the middle of the COVID-19 pandemic.

  • The jumped more than 2% on Wednesday on the news, against a rise of 0.5% for the Europe 600 index.

  • Italy is the European Union country worst hit by the COVID-19 pandemic, with nearly 1,500 deaths per million inhabitants. Its economy shrank by more than 9% in 2020 and is expected to grow a meager 3% this year.

  • The previous government resigned after the coalition parties fell out on how best to spend some €200 billion of grants and low interest loans from the EU’s COVID recovery fund.

  • Italy’s public debt is expected to shoot up to 160% of gross domestic product this year, but the ECB’s asset-buying program has kept the country’s interest rates at historic lows, with yields on 10-year bonds /zigman2/quotes/211347230/realtime BX:TMBMKIT-10Y +1.32% hovering around 0.6%.

Read: Italian assets lead Europe higher as investors hope for a ‘Super Mario’ rescue

The outlook: Draghi, if he accepts, will have to overcome the curse of Europe’s “technical” governments — they tend to fail. The former central banker is known for his no-nonsense decisiveness. But he is — so far — less popular in Italy than he is in the rest of Europe or on financial markets.

If he succeeds in forming a government, he can be expected to focus without waiting on both the immediate crisis and the management of European funds, and on the long-term structural reforms that he has long advocated for Italy.

But his premiership could also have far-ranging consequences for the EU itself. Draghi’s aura and gravitas will by itself change the balance of power among EU leaders, and end years of exclusive Franco-German influence. If, that is, his “technical” government succeeds.

Read: How Mario Draghi Could Change Italy—but Also Europe

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Nov. 29, 2021 5:31p

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