‘Super Mario’ in trouble as Italy’s government wobbles

Following hot on the heels of the fall of UK Prime Minister Boris Johnson, his Italian counterpart Mario Draghi tendered his resignation on Thursday.

While Draghi’s offer to quit was refused, for now, by Italian President Sergio Mattarella, the government could yet collapse soon. In the words of Draghi on Thursday: “The mood of national unity, which supported this government since its inception, no longer exists.” His 17-month old government is in limbo, with its survival tested by increasingly sharp divergences within the right-left coalition.

Draghi has governed with the support of virtually all of Italy's main parties, with the exception of the fast-rising Brothers of Italy party. That far-right organization, which has been riding a wave of increasing popularity and is now polling at 22 percent, is a deeply euroskeptic, nationalist party and its leader, Giorgia Meloni, has now called for an early election that she hopes will be her springboard to becoming Italy's first female prime minister.

Coming in the midst of the Ukraine conflict, and wider economic and political crises, Draghi’s departure will be a body blow to Italy and Europe at large. He became Italy’s sixth prime minister in only 10 years when he took over in February 2021 and has managed to keep Italy on track with reforms that the EU has made a condition for the country to receive €200 billion in pandemic recovery assistance.

Draghi is the widely respected former head of the European Central Bank, the leading central banker of his generation, where he earned the nickname "Super Mario." He made his reputation in 2012 in particular, when the future of the European single currency was in peril, by pledging massive intervention to defend the euro in what was perhaps the decisive moment of the economic crisis.

The reason the latest bout of political turmoil is being so closely watched is the specter of a new wave of political paralysis in this key G7 nation, which has the third-largest economy in the eurozone. Draghi said he would resign after a hitherto key coalition ally, the populist Five Star Movement, appeared to pull its support for the government on Thursday.

Five Star was the largest winner in 2018 elections, hauling in 33 percent of the overall vote. However, it has lost significant support in recent local elections and has slumped in opinion polls to low double digits.

Only a few weeks ago it split in two. Draghi’s strong support for Ukraine after Russia’s invasion was a driving force in splintering Five Star, as some members of the populist party remain opposed to arming Ukraine. It was this issue that prompted Foreign Minister Luigi di Maio to lead an exodus from the party he once headed, saying that now was the time to support “European and Atlanticist values,” and accusing party leader and former Prime Minister Giuseppe Conte of weakening Italy's international standing.

On Thursday, Mattarella turned down Draghi’s resignation and told him to address parliament this coming week, probably on Wednesday, to get a clearer picture and see if he can still command a majority. He may have enough support from key parties, including the Social Democrats and ex-Prime Minister Matteo Renzi's Italy Alive party, to do just that, but it is unclear whether the far-right League party of Matteo Salvini will remain on board, or continue to call for early elections.

Draghi had previously said he would only lead a national unity government, and would not continue without Five Star. If the impasse can't be resolved, the president may find a caretaker leader, or dissolve parliament and call an election as early as September or October.

The reason the crisis is so badly timed is not just due to the ongoing Russian invasion of Ukraine. There are growing doubts about Italy’s ability to pass its budget in the autumn and enact key reforms on which dispersal of EU funds — including its €750 billion pandemic-recovery fund, of which Italy is the largest single recipient — depends.

Moreover, the nation has wider systemic importance in having the biggest debt load in the single currency area, and its banking sector is under significant stress, with massive under-performing loans. There are concerns that if Italy gets into further economic trouble, it could spark contagion that leads to a sovereign debt crisis across Europe. Investors are increasingly questioning whether some eurozone countries can continue to roll over their public debts, which have grown significantly during the pandemic and are becoming more expensive to refinance.

If Draghi’s government falls in the coming days, the next administration may well be weak, unstable and incapable of securing the structural reforms the country badly needs in 2022 and beyond. With such renewed uncertainty in a nation where there have been more than 65 national governments in the post-war era, concerns are therefore again intensifying in Europe, and indeed in the wider Western alliance, about the nation’s future governance.

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