Even ‘Super Mario’ can’t save Italy

As president of the European Central Bank, Mario Draghi was the leading central banker of his generation, but even his formidable technocratic and economic expertise may not be enough to turn around Italy’s political fortunes as he prepares to become prime minister.

Dragi, nicknamed “Super Mario” after the hero in the Nintendo video game, made his reputation in 2012 when the future of the European single currency was in peril.  With three simple words — “whatever it takes” —he changed market sentiment by pledging massive intervention to defend the euro in what was perhaps the decisive moment of the economic crisis.        

His call for governments to establish a substantial bailout fund was initially met with resistance from Germany. But it paid off, economies began to grow and no country left the eurozone, even the exceptionally troubled Greece.

As perhaps the only Italian technocrat or politician with genuine global standing, Draghi is a respected and popular pick to head a new coalition government. Former prime minister Matteo Renzi went as far as to say: “Draghi is the Italian who saved Europe, and I think now he is the European who can save Italy.”

While there is no doubt that Draghi can lead the “high-profile government” that President Sergio Mattarella now wants, the expectations heaped on him are ones that even Super Mario may struggle to deliver on.

Italy is facing its worst crisis in the postwar era. Not only has it been one of the hardest-hit by the coronavirus crisis, with at least 90,000 Italians dead, but Draghi is also facing deep recession and political uncertainty following the collapse last month of the 66th Italian government since 1945.

He will now seek to form an administration to break the parliamentary impasse. While he has much goodwill, Italy’s anti-establishment Five Star movement, which has been in government since 2018, has already said that it will not back him.  

While there is no doubt that Draghi can lead the “high-profile government” that President Sergio Mattarella now wants, the expectations heaped on him are ones that even Super Mario may struggle to deliver on.

Andrew Hammond

One immediate political challenge will be finding political consensus, amid the continuing popularity of anti-establishment politics, on how Italy should spend over 200 billion euros in EU recovery funds, the largest single chunk of a continent-wide 750 billion euro post-pandemic stimulus.  This was the key issue that brought down the last administration.

The renewed political squabbling in Rome has not just been unsettling for Italians. Internationally, too, there is mounting concern because the third largest economy in the eurozone poses perhaps the biggest threat to the single currency area. Italy has the second-biggest debt load in the eurozone, and its banking sector is under significant stress with massive under-performing loans. It is in its fourth recession in about a decade and last month the government forecast its debt will soar to a new postwar record level of 158.5 percent of GDP this year.  While Italy is less systemically important to the eurozone than France or Germany, international concerns about it stem from its status as a key G7 nation. 

This renewed economic angst comes in a wider context of public worry over corruption, and double-digit unemployment and low growth. Indeed, only Greece has fared worse in the eurozone over the past two decades.

And the spike in economic angst comes even before Italy’s chronic political instability is fully factored in.  Despite Draghi’s formidable credentials, questions remain over how long he can stay in power and how capable he will prove to be at securing the longer-term structural reforms that the country badly needs in the 2020s.  This point was made last month by Renzi when he called for bolder post-pandemic changes, saying Italy was “wasting its biggest opportunity since the Marshall Plan.”

One of the central challenges for Italy is the unlikelihood of strong majority governments emerging, thus encouraging political paralysis. In part, this is because of the introduction in recent years of a relatively new voting system that is two-thirds proportional representation, and one-third first past the post, making it harder for any single party to win an outright majority.  The threshold is now around 40 percent of the vote, which no party has come close to.

Collectively, these challenges pose a massive headache for Draghi and it remains unclear whether he has the political skills to turn around Italy’s fortunes.  What is needed is not just another caretaker administration, but one that can drive through a historic reform program. 

• Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics