Italian business sets out wishlist for Draghi government

Italian business sets out wishlist for Draghi government

Mario Draghi is still working to convince leading parties in Italy’s fragmented parliament to back him as he seeks to form a new government, but businesses and financial markets have given him their wholehearted support.

Draghi’s chances were boosted at the weekend after Matteo Salvini, leader of the eurosceptic League, and the anti-establishment Five Star Movement, the largest party in parliament, gave him their conditional backing.

His path to government remains unclear, with talks between the former European Central Bank chief and party leaders continuing in the coming week. Five Star has set out a number of conditions for securing its support, including several green and leftwing policy proposals. Salvini said the new government should focus on economic development, job creation and a ban on tax rises.

Giorgia Meloni’s rightwing Brothers of Italy party has ruled out supporting a Draghi government.

However, the business community has no qualms. Last week, Italian equity markets rallied on the news that President Sergio Mattarella had asked Draghi to form a government after the coalition led by Giuseppe Conte collapsed last month. Meanwhile, spread levels between Italian and German bonds dropped to a five-year low.

Financial analysts hailed the choice of Draghi as “the best possible outcome for Italian markets”, while Carlo Messina, chief executive of Intesa Sanpaolo, Italy’s largest bank, said: “Draghi is super.”

“We are talking about super not only in Italy but all over the world . . . we are talking about a person who demonstrated something special in his role as president of the ECB,” Messina said.

Carlo Bonomi, leader of the national industry lobby group Confindustria, echoed Messina’s words, saying Draghi had the “personal qualities” businesses had long been waiting to see in politicians. 

But with many members of parliament remaining lukewarm, analysts raised questions on whether Draghi would succeed in securing a large enough majority to form a government and implement crucial reforms.

“Financial markets celebrated, and I think the rally may continue. However, keep an eye on the next steps as it remains a minefield,” said Lorenzo Codogno, founder of London-based LC Macro Advisors.

Giorgia Meloni’s rightwing Brothers of Italy party has ruled out supporting a Draghi government © Riccardo Antimiani/EPA/Shutterstock

While political parties tussled to find a compromise, the business community set out a wishlist.

Reto Cueni, chief economist at Vontobel Asset Management, expects a Draghi government to “mark a shift towards a more pro-EU and [a pro-single currency] stance in Italy”. 

Equita Sim, the analyst, said Draghi should prioritise the effective and timely use of the EU’s Covid-19 recovery fund resources and on the implementation of long-overdue structural reforms. Analysts also expect Draghi’s international reputation to attract capital flows into Italy and drive growth in Italian equity markets. 

Bonomi said measures agreed under Conte, including Five Star’s free income policy for job seekers and the League’s early-retirement scheme, should be cut.

“In 2020 our gross domestic product dropped twice as much as Germany’s, Bonomi told Italian daily La Stampa. “We have completely different expectations with Draghi.” 

However, Draghi faces a tough challenge in securing support from parties ranging from the far-left to the hard-right, potentially complicating efforts to pass structural reforms on which the left and right have historically disagreed.

“This is a big risk for him,” said Lucrezia Reichlin, an economics professor at the London Business School.

“Political parties are divided on what are the key necessary reforms, and then we need to consider that the country is scared by the economic crisis and the uncertainty linked to the health situation.”

An SWG opinion poll late last year showed only 14 per cent of voters favoured a government of national unity while 29 per cent supported early elections. however, a poll by Index Research last week showed 61.4 per cent of Italians support a Draghi government.

Additional reporting by Martin Arnold in Frankfurt and Owen Walker in London

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