July 16, 2022

ITALY: Prime Minister Resigned On Thursday. However, The President Refuses To Accept His Resignation Urging Him To Reconsider. Italians Celebrating The Collapse Of Corrupt Government

Bloomberg News
written by Chiara Albanese and Alberto Brambilla
Friday July 15, 2022

Mario Draghi has signaled that he’s determined to resign as Italy’s prime minister next week since he doesn’t have the backing of all the parties in his splintered governing alliance, according to people familiar with the matter.

Italian President Sergio Mattarella rejected Draghi’s resignation on Thursday, urging him to try to shore up support among his parliamentary allies. Draghi had offered to quit after the second-biggest party in his ruling coalition, Giuseppe Conte’s Five Star Movement, effectively abstained in a confidence vote in the senate.

Draghi isn’t willing to reconsider his decision to leave government and is currently expected to reiterate that position when he addresses lawmakers in Rome on Wednesday, said the people, who asked not to be identified because the conversations were private.

A spokesperson from the prime minister’s office declined to comment.

Five Star leaders are set to meet on Saturday to decide how to move forward in the coming days, according to reports in Italian media.

A resignation by Draghi would throw Italy into turmoil just as Europe is contending with an energy crisis fomented by Russia’s war in Ukraine. And the uncertainty comes at a difficult time for the euro area, with the probability of a recession there growing.

A decision to resign would thwart frantic attempts by Mattarella and other political leaders to avert a government crisis before Draghi’s address on Wednesday. Market reaction to the turmoil has been relatively muted so far as investors seemed convinced that disruptive outcomes such as early elections remain relatively unlikely.

Since he was appointed by Mattarella to guide Italy through the Covid-19 pandemic in early 2021, Draghi has said that he would only remain in office if he had the backing of all the parties in the governing coalition. He reiterated the same line in recent weeks as tensions mounted with Conte, who has been critical of Draghi’s response to the economic crisis and has also opposed Italy’s shipments of weapons to Ukraine.

If Mattarella were to call a new election, the vote would have to happen within 70 days. Based on current polls, a center-right coalition led by Giorgia Meloni’s Brothers of Italy would win if its members stick together. That could involve a tie-up with the League, led by Matteo Salvini, who has threatened to ditch Draghi’s coalition. But the political landscape is in flux and it’s possible that no single group would have a majority.

Even though Conte triggered the current situation, he’ll have to decide whether it’s in his party’s interest to have an early ballot -- Five Star’s popularity has plummeted since it entered government and it would likely lose seats.
euronews published July 14, 2022: Italy's president rejects Prime Minister Mario Draghi's resignation over coalition crisis. Draghi survived a confidence vote in the Senate, but his coalition collapsed when the populist 5-Star Movement boycotted the vote in protest at a government bill.

The News Tribune
written by Alesssandr Speciale and Sonia Sirletti, Bloomberg News
Saturday July 16, 2022

ROME — Italy’s political parties are readying for possible snap elections, even as some of them redouble efforts to persuade Prime Minister Mario Draghi to rethink his determination to resign.

While talks to patch up the current majority, or form a new one, continue, Italy’s political groupings are making preparations for a potential vote, several party and government officials said, asking not to be named discussing confidential deliberations. Elections could be held on Sept. 25, according to Democrat Leader Enrico Letta, who is among those trying to salvage Draghi’s government.

Draghi blamed a breach of trust with his broad but fractious coalition when he offered to resign on Thursday in a decision that convulsed Italian markets by raising the specter of fresh political turmoil. While the former central banker so far appears unmoved by efforts to get him to change his mind, he’ll be in parliament on Wednesday at President Sergio Mattarella’s request to address lawmakers.

A resignation by Draghi would pitch Italy into disarray just as Europe contends with a brewing energy crisis fomented by Russia’s invasion of Ukraine.

At the same time, any fresh political turmoil would come at a complex juncture for the euro area, amid growing concerns about looming recession, even though the Italian economy has been faring better than its peers. Early elections would also hamper deliberations over Italy’s 2023 budget, a process that usually dominates parliamentary proceedings during the autumn.

Efforts to convince Draghi to stay on must take account of the terms that he himself set before Five Star leader Giuseppe Conte sparked the current crisis by boycotting a confidence vote. Draghi has made clear he won’t lead a new government that doesn’t include Five Star.

Speaking on Saturday evening, Conte appeared to lay the blame for the impasse squarely on Draghi, saying that the prime minister had offered only “generic answers” to Five Star requests for more social spending. Without concrete plans to address those issues, “we won’t be able to shoulder any government responsibility,” Conte said.

The center-right bloc is the grouping that could benefit most if a vote ends up getting called for autumn. It includes Giorgia Meloni’s Brother of Italy party, which currently tops the polls and is the only major party not backing Draghi, as well as Matteo Salvini’s League.

Antonio Tajani, a former European Parliament president who leads Silvio Berlusconi’s Forza Italia, on Saturday appeared to implicitly back early elections by urging Draghi to stay on in power without Five Star. That’s something the former European Central Bank president has been clear he won’t do.

Conte’s Five Star appears divided between those who want to patch up the rift with Draghi and those who want a full break with the government in an attempt to revive the movement’s moribund electoral fortunes.

Meanwhile, Enrico Letta’s Democrats and other minor centrist parties are still betting Draghi can be prevailed upon to stay on. Former Premier Matteo Renzi said in an interview published by Il Messagero newspaper today that he was working “day and night to form a new government led by Draghi.”

Veronica De Romanis, a professor at Luiss university in Rome, thinks those efforts can still bear fruit.

“With a war, inflation and the European Central Bank’s monetary tightening, the party that leaves the government would impose a huge burden on the country,” she said. “Draghi won’t leave in the end as he would end up being on the wrong side.”
TVP World published published July 16, 2022: Italian economic woes force Draghi’s hand. 2.5 trillion dollars of debt and the prospects of rising interest rates in the euro zone – that's the position that Italy finds itself in as Prime Minister Mario Draghi proffers his resignation after failing to agreed on the passing of the cost of living assistance measures with his coalition partners.

written by Tim Wallace, Telegraph
Friday July 15, 2022

The latest twist of political fate in Italy has ignited an unusually contentious blaze at the heart of the eurozone nation.

Mario Draghi, who became Prime Minister in 2021, wanted to let Rome’s authorities build a new waste incinerator as part of a package of new spending measures. His plan was fiercely opposed by Five Star, a party founded by a comedian and an important part of the coalition which backs the technocratic Government.

On Thursday, Five Star refused to back the former president of the European Central Bank in a confidence vote in Parliament, demanding more environmentally friendly policies — as well as cash to help with the cost of living. On the other side of the coalition is Lega, a more right-wing party led by Matteo Salvini who has grumbled Draghi has slipped too far to the left.

The PM won the confidence vote, but handed in his resignation to President Sergio Mattarella after losing Five Star’s backing. Mattarella rejected Draghi’s resignation attempt on Thursday evening and asked him to address parliament to gauge the political situation.

Amid the instability, Italy faces losing a leader who is highly respected in financial markets at a critical moment — interest rates are rising and Italy needs the support of lenders to keep on financing its teetering mountain of debt.

It marks a dangerous moment for Italy and its economy, and threatens to rock the wider eurozone.

At more than 150pc of GDP, Italy’s debt is far larger than that of any other major economy in the currency area. Spain’s amounts to 118pc of its output and France is at 113pc. Germany is far less indebted with its Government borrowings equivalent to a mere 69pc of GDP.

As it stands, Italy’s debt is one-fifth higher than it was in the summer of 2012 — at 125pc of GDP — when Draghi pledged the ECB would do “whatever it takes” to support the eurozone. His unexpected but extremely valuable promise helped get the sovereign debt crisis under control.

Rome has been able to support surging debt levels thanks to rock-bottom interest rates.

The cheap borrowing Italy relied on started to wobble recently, however, as central banks including the US Federal Reserve and the Bank of England raised rates to combat soaring inflation.

While the ECB has been more cautious, borrowing costs have risen in financial markets nonetheless. For Italy in particular, that risks making its debt pile unsustainable.

The country’s 10-year borrowing costs in bond markets have already risen from 0.7pc a year ago to 1.17pc at the start of 2022, to a current 3.4pc.

During the sovereign debt crisis, economists worried that sustained bond yields of above 7pc would leave Italy on an unsustainable path, its Government unable to cut spending or raise taxes enough to keep a lid on borrowing.

Given the increase in debts over the past decade, Jack Allen-Reynolds at Capital Economics now puts that tipping point interest rate at 5pc.

Christine Lagarde, Draghi’s successor in Frankfurt, is working on a plan to raise interest rates for the eurozone as a whole but keep buying bonds at the same time. It is to reassure financial markets that the ECB is working to keep governments’ borrowing costs down and so help keep the currency zone together — much as Draghi did himself back in the debt crisis.

But that is an untested policy, and the return of political upheaval threatens to pull Italy back to the bad old days, when the Government and markets were in tension. Then, every policy received immediate judgement from financiers on whether or not it would make the country’s debts more or less sustainable.

Christian Schulz, economist at Citi, says this danger “could not resurface at a more inopportune time” than when the ECB is looking at creating this new tool.

“The tool was likely never meant to counter spread-widening due to idiosyncratic country risk,” he says, anticipating officials may limit the way it is used, demanding “tighter limits, stricter conditionality and higher pain thresholds” on bond buying.

Elwin de Groot at Rabobank says the turmoil “is not providing any support for the single currency”, as the euro has fallen to parity with the dollar for the first time in 20 years.

He suspects the political chaos could even push cautious policymakers at the ECB away from its new policy, thus undermining the central bank’s latest plan to maintain stability in the eurozone.

“One could argue that a political crisis only makes the ECB’s balancing act more complicated, as we would not be surprised if the hawks take this as evidence that any such tool is fraught with risks, such as the ECB falling hostage to politics,” he says.

That would leave Italy more exposed to rising borrowing costs at a critical moment.

Draghi only took the reins in February last year, with the aim of offering stability and pressing on with key economic reforms after a Five Star-led coalition collapsed in acrimony.

Polls indicate more right-wing parties have gained support since the 2018 election, raising the prospect of a more eurosceptic coalition taking over, which Allen-Reynolds says could imperil the supply of further EU funds which the Italian state has been counting on receiving.

“Italy has already received 25pc of the funding allotted to it under Next Generation EU, but to receive the rest the Government would have to continue implementing reforms,” says Allen-Reynolds.

“They have got an inefficient public sector, IT adoption is low, the business environment is extremely difficult and the legal system is very, very sluggish. The reforms are aimed at improving all of those, so in that regard they make sense and they have made progress implementing those reforms.”

As well as delivering extra cash from Brussels, the reforms should, in the long run, help boost economic growth in a country blighted by inefficiency, debt and an ageing population.

But without Draghi, who achieved “an extremely unusual — by Italian standards — degree of unity… it is going to be much more difficult in future.”

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