By Cristiana Sandeva, MA Political Economy of the Middle East at King’s College London
A detailed plan on how to spend the 209bn € (£182bn) of the European Recovery Fund Italy is getting from the EU is due to be presented to the European Commission by the end of April [1]. While working towards that deadline, Italy will be in the hands of former ECB Director Mario Draghi, a Boston MIT graduate renown for his promise of doing “whatever it takes” to save the Euro during its 2012 risk of collapse [2]. “Whatever it takes” proved to be enough to save the Euro in the past, but will it suffice to save a country as complex and confused as Italy? Below is an analysis of how Italy ended up having Mario Draghi serving as its new PM, what kind of economic and social scenario Draghi will face, and what his new policies may entail.
A month into its umpteenth governmental failure, Italy is about to have its 67th government proclaimed since 1943 [3]. On January 13th, former prime minister and founder-leader of the Italia Viva (IV) Party, Matteo Renzi, announced that two ministers and the Undersecretary of State, belonging to his party, would be withdrawing from office. The news was the preamble for plunging the country into a government crisis and dismantling the coalition between the Democratic Party and Five Star Movement (DP-5SM), chaired by PM Giuseppe Conte. Renzi’s reasons for promoting such a crisis were that the Conte coalition was failing to handle the pandemic efficiently. There was no clear plan on how the recovery fund would have been spent, and the government should have accepted the European Stability Mechanism (ESM) money it had been offered [4]. Once the crisis mechanism was started, it took an entire calendar month of political debates and voting sessions in the Senate, Parliament and online, to figure out the country’s next steps.
The initial goal was to salvage what had been left of the Conte government and recreate it with a renewed coalition. Once that attempt failed, Italian President Sergio Mattarella faced two choices: either call citizens up to the polls in an anticipated election or nominate a technical government. Voting would have proven a risky move at the time, both for the covid-related complications it may have caused and because a coalition of right-winged parties would have been likely to win a significant amount of seats in both Chambers [5].
In short, President Mattarella’s final decision to tackle the governmental chaos was to ask Mario Draghi to step in and save the country from drifting and drowning. As Draghi accepted the challenge, he was met with further challenges, having to secure trust from the majority of the parties in Parliament, many of which were not keen on him. After a tortuous road towards majority approval, as of February 12th, the Draghi government has now gathered the trust vote of all parties but Giorgia Meloni’s conservative Fratelli d’Italia (FdI) – thus gaining the needed legitimation to step in [6]. The names of the ministers selected by Draghi have been announced: some of them being politicians and some of them field specialists not directly affiliated with a political party. A new ministry of ‘ecologic transition’ is set to be established [7]. That is as concise as a summary of the government crisis may get.
Aside from the political turmoil, what is the current state of the Italian economy?
The short answer is that it is terrible. Italy never fully recovered from the 2008 financial bust, and the pandemic crisis just added up to its everlasting downslope, bringing it down to its knees. A year of lockdowns and restrictions has wrecked the recreational sector, with restaurants and hotels being among the hardest-hit businesses and income from visiting foreigners have hit zero due to travel bans [8]. Furthermore, Youth unemployment is at 30.9% [9]. Money from furlough schemes is being delivered with substantial delays [10]. Millions of euros which might have been deployed to aid struggling businesses have been splurged on questionable initiatives, such as supplying school desks with wheels or reimbursing citizens who set out to buy scooters and bicycles [11]. The latest proposal to pointlessly spend money, announced as the vaccination campaign began in Europe, had been to build vaccine gazebos in the shape of primroses, costing 400,000 € per unit. [12]. Italy’s economy has been described as “sclerotic” [13], and that is pretty much its essence in a word.
The economic inefficiency of the country is linked to its both confused and confusing politics. The Italian political panorama is as multifaceted as it is flat. The Democratic Party and its other left-wing satellites lack innovation and spirits, relying on their legacy of good governance and on the hastiness of oppositions to garner public support. The right-winged trinity of Meloni, Salvini and Berlusconi operates through conservative demagoguery to secure votes. The recentlywill-whatever-it-takes-be-enough-to-save-italy introduced 5 Star Movement, which does not even label itself as a party, appears to be a conglomerate of incompetent populists who appeal to an audience of similarly minded people. It is not surprising, then, that such a political environment is unable to provide meaningful economic policies and implement its choices with consistency.
On the one hand, the expectations for the upcoming Draghi administration are extremely high. Given the economic slump, it may take more than “whatever it takes” to recover a country that has been ill for over two decades. Simultaneously, whatever Mario Draghi may do during his mandate, it is most likely not going to be worse than what has been done thus far – from this perspective, it would just take whatever to improve the situation just a bit. Next up to be seen is how the new ministers perform, and what his spending plan will be on how to utilise the Recovery Fund. Along with that, internal economic issues will be tackled in the upcoming weeks, the most salient of which will be that of discarding the introduction of a flat tax on effective tax rates, supported by Salvini’s Lega. Despite the confusion caused by the government crisis amidst the pandemic, Draghi’s prime-ministership comes as a blessing for both Italy and the EU. Saving the Italian economy might be in itself a game lost before it even starts, but Mario Draghi is the most qualified player to enter it and set the pace for the race right now.
Exclusive Offer: Get £100 off your Summer Internship Experience at Amplify Trading by clicking here or using our unique discount code at the checkout: MSAmplifySummer2021. Participants graduate from the course with a Diploma from the London Institute of Banking & Finance. For more information about the course, click here.
References
-
https://www.dw.com/en/political-turmoil-for-italy-comes-at-the-worst-possible-time/a-56215208
-
https://www.britannica.com/biography/Mario-Draghi#:~:text=Mario%20Draghi%2C%20
-
https://www.repubblica.it/politica/2021/01/13/news/crisi_di_governo_renzi_conte_diretta-282319710/
-
https://www.ft.com/content/e777c1ef-c031-42f1-8cb2-610920f7efbb
-
https://www.statista.com/statistics/776931/youth-unemployment-rate-in-italy/
-
https://www.ft.com/content/7c2007d9-6ce9-4895-ac5c-cd17e3bf69b2
Contributor to The London Financial
We combine research produced by students and early professionals into a single website, breaking down the barriers to entry individuals face in a number of industries.
Contributor opinions are their own and do not necessarily reflect the stance of the LF.