“Super Mario” struggles to get Italy out of the rut

His famous “whatever it takes” ten years ago is only a distant memory. The task of the savior of the euro Mario Draghi – nicknamed “Super Mario” for his action at the head of the European Central Bank – is today much more difficult: to get the continent’s eternal economic and financial weak link out of the crisis. while being at the head of a heterogeneous and fragile majority. Pressed between the whims of left, far-right or anti-system parties, a war in Ukraine, an increase in energy prices and a pandemic worsening in general indifference, the President of the Council has only little room for manoeuvre. At the gates of summer, all his attention is focused on the ongoing conflict. After a visit to kyiv alongside French President Emmanuel Macron and German Chancellor Olaf Scholz, he defended this week before parliament the sending of new weapons to the Ukrainians and his support for European sanctions against the Kremlin.

Harassed by this uncertain context, further aggravated by an acceleration in inflation that the country had not seen since 1986, Italy is also suffering from the consequences of the announcement by the President of the European Central Bank, Christine Lagarde, of the increase in key rates next July and September. Refusing to comment on this decision, the former central banker nevertheless deemed it “inevitable”. But the markets didn’t like it: Italian debt yields soared from 3.37% to 3.76% in the aftermath of the June 9 ECB meeting, even exceeding 4% for the first time since 2014. Under pressure, the peninsula, whose sovereign debt amounts to more than 150% of GDP, therefore has more difficulty raising money on the markets.

A weak government

“Italy is suffering more than the others because of speculative attacks but there is in reality no risk linked to its debt, comments Francesco Saraceno, professor of international macroeconomics at the Luiss University in Rome. Nothing justifies the spread, Italian debt is no more unsustainable than French, Spanish or even German. In Italy, the highly commented “spread” is the difference between the yields of Italian securities (Btp) and German Bunds at ten years. Today at 193.1 basis points, the differential had reached 240 after the ECB’s announcement. In the past, it had exploded to 550 basis points during the sovereign debt crisis or to 325 points in 2018, when the populist parties the League and the 5 Star Movement combined to take power.

But “having Mario Draghi at the head of the government does not solve all the problems, regretted Il Foglio on 7th May last. The good economic recovery hampered by the international situation and the inflationary pressure mean that the narrow path subsequently narrows and that the executive finds itself in the difficult situation of having to support the economy, tested by the energy shock and the war, without to be able to resort to indebtedness or monetary drugs.” In order to avoid a new recession, the former head of the Bank of Italy released 14 billion euros in early May to help households and businesses. This sum is added to another 15 billion already provided for the previous month and financed thanks to the increase in the tax on the profits of companies in the energy sector. Introduced a month earlier to counter the rise in fuel prices, this contribution was to increase from 10 to 25%.

“Is the Draghi effect over?” the economic newspaper Il Sole 24 Ore wondered last month. “There is a Draghi effect in speech but not in action,” replies economist Francesco Saraceno. His policy is centered on the European recovery plan, but what he presented in Brussels is fundamentally no different from what the previous government had prepared. There is certainly a prestige of Mario Draghi influencing European dynamics but this has not yet produced any effects. The President of the Council has not yet succeeded in leaving his mark on the national political scene. “Since 2020, all European governments have been doing more or less the same thing, fears the professor. All were concerned with supporting income and employment, then bet everything on the plan Next Generation EU before having to deal with the effects of inflation today.” Mario Draghi’s Italy is also suffering from the threat of paralysis, which is growing as the legislative elections of spring 2023 approach.

Read also: In Italy, the mirage of the minimum wage

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