The new Italian Prime Minister Mario Draghi.
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LONDON – New Italian Prime Minister Mario Draghi is already transforming the political scene in Rome and raising stock markets.
In the wake of fresh political chaos, the former president of the European Central Bank has been asked to become the new leader of Italy and save his turbulent economy. His arrival is described as ‘better than expected’ after garnering widespread political support and the threat posed by populist forces.
Draghi, who was sworn in on Saturday, hosted his cabinet over the weekend – a group made up mostly of politicians from different parties and some technocrats in key ministries.
“This is the best possible result, and better than I expected, because it provides some stability and political accountability,” Erik Nielsen, group chief economist at UniCredit, said in a research note on Sunday.
Draghi managed to gain support from the largest political forces in Italy, following concerns that a purely technocratic team would have a short lifespan. The next general election in Italy will only be available in early 2023.
The return of Mario Draghi, now the Prime Minister of Italy, has dramatically changed the political landscape.
By securing wide political support and a diverse team, Draghi has already improved the outlook for Italy. Analysts have become more clumsy about Italian government bonds, citing ‘expectations of more efficient use of the NGEU (Next Generation EU) funds, structural reforms and a better outlook for vaccination’, according to a UniCredit note.
At the same time, Italy’s most important index has risen more than 7% since the beginning of the month.
Analysts at Barclays believe that economic growth will also increase in the second half of the year. “The return of Mario Draghi, now the prime minister of Italy, has dramatically changed the political landscape,” Barclays analysts said in a note on Monday.
They explained that the winner from the month-long political crisis turned out to be the Lega Party against immigration. The more centric PD used to oppose the unification of Lega and this new unit created tension within the party. Meanwhile, the other big party, the Five-Star Movement, saw internal divisions when Draghi’s premiership was approved last week.
Dormant populism
This could shift the picture in Italian polls. Lega is still the most popular political party with about 24% of public support. However, the Five Star Movement and PD – which formed the previous government – could face a setback. PD, which enjoyed 20% of public support in January, lost one percentage point in a poll released on 11 February.
At the same time, Draghi’s arrival also dampened populist rhetoric, at least for now.
“What we can say today is that populism in Italy is weaker for the intervention of Draghi and the intervention of the pandemic and European integration,” Lorenzo Castellani, a historian at LUISS Guido Carli private university, told CNBC last week .
Italy had two main populist forces in the aftermath of the 2018 general election – the Lega and the Five Star Movement. But both have now become a less anti-EU attitude, Erik Jones, a professor at Johns Hopkins University, told CNBC.
“The five-star movement made its pivot when it supported Ursula von der Leyen (President of the European Commission) in June 2019; the Lega made its turn when they decided to support Draghi in forming an openly pro-European government of national unity, “he added.