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Mario Draghi, Former Head of ECB and “Savior of the Euro,” to Lead Government

"I am confident that from talks with parties, the parliamentary groups and unions, unity will emerge." But it remains to be seen if he can gain the support

Since the 1990s, in times of national crisis it has become the established practice in Italy to call on unelected outsiders, so-called technocrats, to lead the government. “We have extraordinary resources coming from the EU and we can do a lot for the future of the country.” His task is expected to be two-fold: drag Italy out of the coronavirus pandemic, and revive its severely weakened economy with the help of EU money due under the Recovery Fund.

On Wednesday, Mario Draghi, the former head of the European Central Bank accepted a mandate from Italy’s President, Sergio Mattarella, to form a new government. Draghi was asked to confront “the serious health, social, economic and financial emergencies” facing Italy.

The Italian economist was asked to form a government following the collapse of premier Giuseppe Conte’s coalition. The crisis was sparked when former prime minister Matteo Renzi withdrew his small Italia Viva party from the ruling majority in January over disagreements regarding the government’s handling of the Coronavirus pandemic and the spending plan for the recovery fund money provided by the EU. Renzi repeatedly suggested Draghi as the ideal person to lead a new government.

Matteo Renzi and Giuseppe Conte

In reality, Draghi’s name had been circulating for weeks as the top choice to lead Italy out of its current political crisis. Experts cited Draghi’s experience, professionalism and determination as crucial attributes for a so-called “technocratic” government led by a non-politician. Evidently, for the man whose illustrious career has earned him the nickname “Super Mario,” even a task as complex as “fixing Italy” is a challenge that cannot be refused. The designated prime minister said he would attempt to find a way forward. “I am confident that from talks with parties, the parliamentary groups and unions, unity will emerge,” Draghi said.

This is not the first time a non-politician has been asked to lead an Italian government. Since the 1990s, in times of national crisis it has become the established practice in Italy to call on unelected outsiders, so-called technocrats, to lead the government. In 1993, after the “Clean Hands” nationwide corruption scandal wiped out the political parties that had ruled Italy since World War II, Carlo Azeglio Ciampi, a former central banker like Draghi, was the first technocratic premier, leading a cabinet of experts that also included a few professional politicians. Ciampi was replaced by Silvio Berlusconi after the media mogul won his first general election, in 1994.

 Mario Monti

Mario Monti

Mario Monti, an economics professor and former EU commissioner, led the most recent “government of national unity”, from late 2011 to mid-2013, to see Italy through a major crisis. Monti was asked to form a government, when Italy’s near bankruptcy threatened to cause the collapse of the entire eurozone. But, unlike Monti, who had to introduce painful austerity policies, Draghi will have a lot of money to hand out. In fact, his task is expected to be two-fold: drag Italy out of the coronavirus pandemic, and revive its severely weakened economy with the help of EU money due under the Recovery Fund.

Experts cited Draghi’s experience, professionalism and determination as crucial attributes for a so-called “technocratic” government led by a non-politician, but conceded that convincing Italy’s bellicose parties to get behind him will not be easy. Draghi said on Wednesday he was confident “unity will emerge” from dialogue with political parties and parliamentary groups. However, it is unclear whether he will be able to obtain the broad support he needs from the various political forces.

“I thank the president of the republic for the trust he has placed in me,” Draghi said in a brief speech after his meeting with Mattarella. “Overcoming the pandemic, completing the vaccination campaign, responding to the needs of citizens and relaunching the country are our challenges. We have extraordinary resources coming from the EU and we can do a lot for the future of the country.”

If he obtains a vote of confidence, Draghi’s main challenges will be to defeat Covid-19 and to boost the economy. Italy’s tourism industry has collapsed and as a result, hotels, restaurants and the retail sector are suffering, and more than two million people have lost their jobs. The crucial issue will be to make the best use of the €209 billion ($251.31bn) made available to Italy through Next Generation EU, a European recovery instrument to help repair the immediate damage done by Covid-19.

Experts are comparing the funds to a new Marshall Plan and Draghi is seen to be uniquely capable of handling such sums. His leadership would immediately increase the country’s international stature, credibility and clout in Brussels. Italy is undoubtedly facing its most complex crisis since World War II, as it faces the need to conquer the pandemic, fix the economy amid deep social paralysis and widespread frustration.

President of the Republic Sergio Mattarella with Mario Draghi (Photo Quirinale)

Italian media have repeatedly pointed out that Draghi was universally recognized as “the savior of the euro” nearly a decade ago and he is a highly respected public figure for a majority of Italians. “Whatever it takes”, he said in 2012, implying that the ECB would do anything to preserve the euro: an expression that has become so legendary in Italy that it has appeared in graffiti on city walls.

Draghi was named to head the ECB in November 2011, at a moment in which alongside worries that the sovereign debt crisis in Greece would spread to other countries, there was a concrete risk that entire Eurozone might collapse. Under Draghi’s leadership, the ECB took unthinkable measures when the euro single currency was launched in 2000: cutting interest rates to negative territory, and injecting liquidity into the markets through massive asset repurchases.

Nine years ago, with some euro governments’ bond yields soaring and financial markets betting on the near-end of the monetary union, Draghi made the following statement to an audience of City of London financiers: “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”

“Whatever it takes.” These three words spoken by ECB President Mario Draghi marked the turnaround of the euro crisis. “And believe me, it will be enough,” he added defiantly.

The beauty of it all rests on the fact that Draghi’s statement led the world to believe that the ECB was willing to unleash all the resources of the 27 countries of the EU to protect its currency against international speculators. In reality, Draghi was risking his job because he didn’t have a mandate from the ECB’s board and he could have been contradicted the following day by the German representatives or others. But one hour after his speech, as if by magic, international speculation against the euro ceased and Draghi had won his war.

After July 26, 2012, “whatever it takes” became a catchphrase. In the context of the debt crisis, it expressed a strong commitment to Europe and the euro area. As Pierre Briançon has written in Moneywatch.com, “After talking the talk, Draghi soon began to walk the walk and embarked on his eight-year loosening of the central bank’s policies, complete with quantitative easing and, as soon as 2014, negative interest rates.”

Recently, the famous phrase “Whatever it takes”, used by Mario Draghi during the economic crisis of 2012, has entered the digital lexicon of Treccani, the most prestigious encyclopedia of  the Italian-language. Despite the fact that Draghi has no political party of his own, many parliamentarians don’t want fresh elections because they fear they might not be re-elected, so when push comes to shove they will vote for him.

Mario Draghi was born in Rome on September 3, 1947, and is married with two children. He received a Jesuit education, and that worries some Italians who figure that he may take his new job very seriously and, unlike the majority of his fellow Italian politicians, not be willing to bestow favors on family, friends or clients.

If he obtains a vote of confidence, Draghi’s main challenges will be to defeat Covid-19 and to boost the economy. As a matter of fact, one of the key reasons for the collapse of Giuseppe Conte’s government is that it wasn’t able to come up with a serious plan concerning the use of the money that Italy will be receiving from the EU.

Mario Draghi after his meeting with President Sergio Mattarella (Quirinale)

In an article in the Wall Street Journal, Marcus Walker and Giovanni Legorano point out that “Italy’s deep-seated economic problems include a lack of productivity growth going back to the 1990s. Economists and business people point to many factors that hold back innovation and productive investment: a thicket of bureaucracy and permits, complex and contradictory laws, a sclerotic court system, underfunded and outdated universities, public-sector corruption, political instability that hinders policy-making for the long term, poverty and underdevelopment in Italy’s south, and a business sector with a surfeit of tiny family-owned companies, often run by aging and risk-averse founders.”

These are issues that Mario Draghi is certainly aware of. But tackling even a few of the above-mentioned problems would require time and political support and, at present, no one is able to judge how much, if any, of these two factors Draghi will be able to enjoy.

Some experts point out that while Draghi may be able to help pull Italy out of its present hardships, he is unlikely to be capable of healing the country’s weak democracy. This may, in fact, be true. For a majority of Italians, if he can defeat Covid-19, fix the economy and possibly just one or two of the country’s chronic problems, he will have accomplished more than enough.

 

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