As Draghi resigns, what is behind the political crisis in Italy?
Summary
Italian Prime Minister Mario Draghi resigned following a tumultuous week of political haggling
Following disagreements in recent weeks among the disparate parties in his national unity government, Italian Prime Minister Mario Draghi held a confidence vote in the Senate on Thursday, July 21, to test his support. Though he won that vote, three of the main parties in his coalition abstained, indicating the prime minister no longer commanded a majority.
Rather than soldier on, Mr. Draghi, who isn’t an elected member of parliament and has no official party affiliation, resigned.
The move plunged the country into uncertainty as it fights surging inflation and an economic slowdown.
What were the causes of the crisis?
After a brief honeymoon immediately upon taking the helm at the beginning of last year, Mr. Draghi has faced constant infighting among the parties supporting his national unity government.
The coalition’s largest parties ranged from the far-right League to the Democratic Party, a mainstream center-left grouping. The coalition also included the 5 Star Movement, an amorphous populist party headed by previous Prime Minister Giuseppe Conte, and Forza Italia, the party of Silvio Berlusconi, the media mogul and former prime minister.
The war in Ukraine presented Mr. Draghi with a particularly sticky situation that he never fully resolved. While the majority of Italian politicians immediately condemned Russia’s invasion of Ukraine, many quickly came out against sending arms to Kyiv.
Within Mr. Draghi’s coalition, the League and 5 Star often wavered in their support for Ukraine. Mr. Conte’s tepid support of Ukraine led to a splintering of his party and put pressure on Mr. Draghi’s coalition.
The breadth and depth of measures meant to give relief to families and companies from surging inflation also strained the coalition. The government was in the process of approving and implementing relief measures when 5 Star withheld support the first time in the Senate earlier in July.
What happens next?
President Sergio Mattarella called for an election for a new parliament, with the date set for Sept. 25.
Italy has never held a national election in the fall since becoming a republic after World War II, because it is the period when parliament must approve the budget for the following year. That taboo is set to fall.
Mr. Draghi will stay on as a caretaker prime minister until a new government is formed following the September election.
What has the impact been on financial markets?
Financial markets have shifted quickly with the ebbs and flows of Italy’s political crisis. When Mr. Draghi’s coalition seemed to be regaining its footing, Italian stocks tended to rise, and the gap, or spread, between yields on 10-year Italian government bonds and their German equivalent tended to narrow.
When it became clear on Wednesday, July 20, that Mr. Draghi’s grip on power had begun to slip, the spread began to widen, indicating investors wanted a higher payout to hold Italian debt. The spread reached 2.3 points on Thursday compared with 1.3 points at the start of the year.
Italian banks, including UniCredit SpA and Intesa Sanpaolo SpA, suffered the most on Thursday when Mr. Draghi resigned.
The euro has held relatively steady over the past week as the Italian political crisis unfolded.
Who might win when the new election is held?
A right-wing coalition of the League, Forza Italia and Brothers of Italy would win an election if it were held today, according to opinion polls. The three together would garner about 45% of the vote, a recent SWG poll found. In Italy’s splintered electoral map, that would be enough to have a commanding majority in both houses of parliament.
Brothers of Italy, the farthest to the right of the three parties, is now far ahead of the League and Forza Italia in the polls. The three party leaders have often said that whichever of their parties got the most votes would pick the next prime minister. If they stick to that policy, Giorgia Meloni, the leader of the Brothers of Italy, would be in line to become Italy’s next prime minister.
The Democratic Party, the leading center-left group, is polling almost even with Brothers of Italy. But the Democratic Party probably will be allied only with much smaller parliamentary groups, meaning it is unlikely to be part of the new government.
The 5 Star Movement, which triggered the crisis by not supporting Mr. Draghi in last week’s parliamentary vote, won about 33% of the vote in the last national election in 2018, making it the biggest party in Parliament. But now it is polling at about 12%.
