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Draghi’s Government: A Sign of Hope or of Harder Times?

Published on 18 February 2021 at 12:33

Mario Draghi, former President of the European Central Bank, has just been sworn in as Prime Minister of Italy after the collapse of the previous coalition government led by Giuseppe Conte. While he has enormous experience in public life and has assembled a team of experts in his cabinet, Draghi nevertheless faces a mammoth task in bringing Italy back from the economic havoc unleashed by the Covid-19 pandemic.

 

The most recent Italian general election was held in March 2018, which resulted in a hung parliament. Following three months of negotiations, a coalition was formed between the populist Five Star Movement led by Luigi Di Maio and the right wing League (formerly known as the Northern League) led by Matteo Salvini. The party leaders agreed to serve as Deputy Prime Ministers while Giuseppe Conte, an independent who leaned in support of the Five Star Movement, would serve as Prime Minister. In addition, former Prime Minister Matteo Renzi pledged that he and his party, the centrist Italia Viva, would support the new government.

 

In January 2021, Renzi withdrew his party’s support of the government, triggering a crisis of confidence. After barely surviving key votes of confidence in Parliament, Conte resigned and the President, Sergio Mattarella, invited Draghi to become the next Prime Minister. Most parties in both houses of Parliament pledged their support for Draghi’s premiership and the former ECB head was sworn in on the 13th of February.

 

This is not the first time an Italian Prime minister has been appointed in this fashion. Following the Financial Crisis in 2009 and the subsequent recession, Italy faced a dire financial situation. Prime Minister Silvio Berlusconi resigned from his position in November 2011 and the then-President Giorgio Napolitano asked Mario Monti to form a new cabinet. Monti, a former European commissioner who had only been appointed “Lifetime Senator” earlier that month, assembled a so-called “Experts’ cabinet” composed entirely of unelected professionals including economists, a criminal lawyer and a military officer among others.

 

The Monti Cabinet’s primary aim was to prevent Italy from facing a sovereign debt crisis (as had been the case in Greece and Ireland). Over the course of its 18-month term, the government enacted budgetary reforms aimed at reassuring the EU and investors among others. While Italy ultimately avoided the fate met by Ireland and Greece, the reforms were unpopular and populist parties, including the Five Star Movement and the League, gained large numbers of supporters in the elections following this technocratic government’s time in office.

 

Greeting the new prime minister are challenges surpassing even those of Italy’s previous technocratic government. Like many countries across the world, Italy has been hit hard by the Covid-19 pandemic. The Italian economy contracted by 9% in 2020 and, at the time of writing this article, over 94,000 Italians have died after testing positive with the virus.

 

Draghi’s key challenge at the start of his term is to speed up the vaccination of the population; so far, only 1.3 million people have received both doses of the vaccine in a country of 60 million. In addition, the new government must figure out how best to use the €200 billion it expects to receive from the EU’s post-Covid recovery fund. Such an enormous sum comes with important conditions including reforms in energy, infrastructure, education and health policy among others. Draghi’s cabinet has the unenviable task of passing and enacting key reforms in these areas, many of which will no doubt be unpopular among the public.

 

In the longer term, Draghi’s cabinet will seek ways to reinvigorate the economy after years of stagnation and, more recently, the economic devastation wrought by the pandemic. Given that the government’s term is expected to be short (the next election is scheduled to take place no later than June 2023), it is unclear how much influence Draghi will have in shaping the country’s economic outlook in the longer term. Instead, the main focus will be to vaccinate the population, get people back to work and to begin the process of rebuilding the country’s economy and infrastructure in the short to medium term.


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