Mondadori Portfolio | Mondadori Portfolio | Getty Images Italian Prime Minister Mario Draghi tendered his resignation on Thursday, paving the way for new elections and opening a new chapter of political uncertainty. Speaking in parliament, Draghi said he was to meet President Sergio Mattarella and inform him of his intentions after failing to unite his fragile coalition government. Mattarella reportedly asked him to stay in place in the interim with an interim government. “Thank you for all the work we have done together during this period. After the vote that took place last night by the senate of the Republic, I ask that this meeting be adjourned because I am on my way to the President of the Republic to communicate intentions” , Draghi told lawmakers early Thursday. It comes after Draghi was snubbed by his coalition partners in a confidence vote in the Senate on Wednesday, effectively meaning the government had collapsed. Despite winning the vote, the left-wing Five Star Movement, one of the parties in the coalition government, said it would not take part. The ruling Lega party and the Forza Italia party also said they would not take part. It paves the way for difficult and uncertain early elections, which could be held in September or October. Last week, Mattarella rejected Draghi’s first resignation and asked him to lead more negotiations with lawmakers in the hope of avoiding early elections. This came after the Five Star Movement opposed a new decree aimed at reducing inflation and combating rising energy costs. Italy’s lawmakers held a confidence vote on the broad policy package, but Five Star boycotted the move, angering both Draghi and the right-wing coalition parties. Draghi, the former head of the European Central Bank, was then called by Mattarella to return to the upper house of parliament and hold a vote of confidence in the government itself on Wednesday, meaning Italian politics have been in a deadlock for the past week .
The returns are increasing
Italian bond yields rose on Thursday on expectations that Draghi will step down. The yield on the 10-year Treasury note rose to 3.6350 percent at about 10 a.m. local time. it was around 1% at the beginning of the year. Additionally, stocks were lower on Thursday’s news. Italy’s main index, the FTSE MIB, was trading almost 2% lower in early Europe. There are several reasons why investors are worried about Italy. First and foremost, polls show a fragmented parliament, meaning new elections could lead to tough coalition negotiations. At the same time, Italy has one of the largest piles of debt in Europe, faces record inflation and limited growth prospects. This macroeconomic environment is becoming particularly challenging as the European Central Bank prepares to raise interest rates, which could hamper Italy’s economic performance going forward. “Judging by some long-term fundamentals, Italy is slowly turning into an accident waiting to happen,” Holger Schmieding, chief economist at Berenberg, said in a note on Thursday. He cited three major problems: a low growth trend, dismal demographics and a penchant for political theatrics. “For now, we have to prepare for annoying noise crises, but not a genuine Euro 2.0 crisis, in our view,” he added.
Months of stability
Hundreds of mayors signed an open letter over the weekend calling for Draghi to stay. Union leaders and industrialists also rallied to call on Draghi to stay in power. Meanwhile, thousands of citizens also signed an online petition asking Draghi to stay, according to the AP. Technocrat leader Draghi had brought political stability to Italy over the past 15 months, which was critical to receiving nearly 200 billion euros ($205 billion) in pandemic recovery funds. His leadership has also been important in the context of Russia’s invasion of Ukraine, with Draghi playing a role in EU sanctions and supporting Italian households facing higher consumer prices.
