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In January 2022, the Italian parliament, together with regional representatives, will cast secret ballots to elect the country’s next president, and its choice will have much wider implications than most people realize. We have identified the Italian presidential election as one of the three votes that could determine the fate of the EU in the coming years, the other two being the German federal election held in September and the French elections next April and June.

The Italian president is generally seen to perform only a ceremonial role. Yet, although Italy’s constitution establishes the republic as a parliamentary democracy, with the government dependent on the confidence of an elected legislature, that system works only during periods of relative “tranquility". When the political system is dominated by well-functioning parties that are capable of securing a solid majority in parliament, the president’s role is marginal. But in “turbulent" periods, when the political system is weak and incapable of delivering viable solutions, the president becomes a deus ex machina. The two most important tools at the Italian president’s disposal are the power to appoint the prime minister and approve this leader’s cabinet; and the power to dissolve parliament after having “heard" the speakers of the two chambers. Moreover, as the signer of virtually all laws and decrees, the president also has the power to send legislation back to parliament. The president also serves as commander in chief of the army and as head of the judiciary’s governing body.

Thanks to these roles, two chains of command have long been recognized in Italy. The first is headed by the PM, who exercises power through ministers and the wider political system. The PM is formally in charge of domestic affairs and has the greatest impact on people’s daily lives. Political legitimacy is key to the functioning of this office. The second line of command is more institutional than political. The president is responsible for Italy’s relationship with Europe, including its adherence to EU treaties and rules, and with allies like the US. The president wields influence through the technocratic structures of the ministry of economy and finance, particularly the all-powerful accounting office and the Bank of Italy. On past occasions when the Italian political system seemed to veer toward populist anti-EU positions, it was the president who reassured allies of Italy’s commitment to international agreements.

Italy’s presidential election will be held at a crucial moment. Approved to receive nearly €200 billion in conditional grants and cheap loans from the €750 billion Next Generation EU fund, Italy is expected to embark on an ambitious reform programme from 2022 to 2026. By showing that intra-EU redistribution can be done efficiently and effectively, Italy could fundamentally change EU politics, setting the stage for a permanent redistribution mechanism and the creation of a fiscal union.

The policy implications would be profound. The EU would have greater means to tie fiscal support with national structural reforms, with the aim of increasing the bloc’s growth potential. At the same time, monetary policy would come to play a relatively smaller role, with the European Central Bank (ECB) focusing almost exclusively on inflation control, rather than on pursuing backdoor measures to share risk in the absence of a common treasury. But if Italy proves unable to spend the EU funds effectively, Next Generation EU will be remembered as a one-off exercise. Economic stimulus will continue to be a task for national-level fiscal policymakers and the ECB.

It is therefore crucial for Italy to succeed in making its economy more efficient. This outcome is far from assured, given its relatively poor track record of deploying EU funds. The European Commission’s approval of Italy’s recovery plan owes much to the fact that former ECB President Mario Draghi is now Italy’s PM. The question, then, is how best to ensure that Draghi will continue to lead Italy’s reforms.

There are two schools of thought. The first considers Draghi well placed to serve as PM at least until the end of the current parliament in February 2023. That would allow him to oversee the initial implementation of the plan, while centrist parties try to offer a political platform that would furnish him with a new majority in the next general election. He would have at least until 2023 (and perhaps until 2028) to implement the Next Generation EU agenda. The second school of thought thinks it would be better for Draghi to become president. This way, he would be able to oversee many elements of the reform plan for the next seven years, ensuring that Italy adheres to EU treaties in letter and spirit, even if a new eurosceptical government were to gain power.

The first option seems easier, because the current government will remain unaffected by the 2022 presidential election; but it could run into trouble the following year, because there is no guarantee that Draghi would return as PM. The second scenario would depend on Draghi winning a secret ballot for the presidency, which can’t be guaranteed either, but it would lock in his presence as head of state for the next seven years.

Italy remains the Eurozone’s weakest link. This means that Italian policymaking will be key to the EU’s survival and prosperity in the coming years. If populist parties were to return to power with debt and deficit levels already so high, Italy’s membership of the eurozone could be cast into doubt, auguring all kinds of market disruptions. Far from a pro forma ritual, the upcoming presidential vote could not be more consequential. ©2021/Project Syndicate

Nouriel Roubini & Brunello Rosa are, respectively, co-founder of TheBoomBust.com; and a visiting professor at Bocconi University.

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