Since he walked into Palazzo Chigi in February 2021, Italians, Europeans, international partners and financial markets had one certainty: Mario Draghi would do “whatever it takes” to get his country back on track. The ex-European Central Bank (ECB) point man has risen to the challenge. He has brought that very same pragmatic approach to the fight against COVID-19, the consequent economic downturn, and the enemies of the multilateral order, strengthening Italy’s role in the EU and multilateral fora in the process.
The Italian prime minister leaves Italy in a much better shape than he found it. It is only thanks to Mr. Draghi that The Economist crowned Italy the country of the year for 2021. Indeed, as the British newspaper wrote last December, “it is hard to deny that the Italy of today is a better place than it was in December 2020”.
Response to COVID-19
Italy’s COVID-19 vaccination rate is among the highest in Europe. Besides, il Bel Paese is set to receive nearly $192 billion (€191.5 billion) from the European Commission’s Next Generation EU, a €750 billion recovery fund designed to boost the bloc’s economic growth hampered by the pandemic. Italy is getting more funds than any other EU country.
The Italian prime minister planned to make efficient use of the EU money. In fact, his reform-rich Recovery and Resilience Plan (NRRP) had persuaded European Commission President Ursula von der Leyen to disburse more than $25 billion (€24.9 billion) in pre-financing and the first tranche of over $21 billion (€21 billion) of the total sum. Italy also requested the second tranche, of over $21 billion (€21 billion) too, at the end of last month. These allocations, though, are conditional on Italy meeting the objectives set in the NRRP. So far, the Italian government has reached all 45 milestones and targets. With Super Mario gone, however, it is extremely unlikely that Italy will continue to do so.
According to Istat, the Italian GDP grew by 6.6% during Draghi’s first year in office, the highest rate since 1976. Bear in mind that the eurozone’s third largest economy was the first European country to be hit by the pandemic. However, the Russian invasion of Ukraine has sent energy, food and commodity prices soaring. And as a consequence, the Italian GDP contracted by 0.2% in the January-March quarter of 2022.
Italy, the Sick Man of Europe
The Draghi administration instituted damage control measures to reduce the impact of the war on the economy early on. It is for this reason that Minister of the Economy and Finance Daniele Franco estimated “robust growth” for the GDP in the second quarter in a speech at the Italian Banking Association (ABI). Neither did Franco know nor could he possibly predict that Giuseppe Conte’s party would unleash hell in Palazzo Madama. Conte was Draghi’s predecessor and has been the president of the populist Five Star Movement since August 2021.
To understand why Draghi came under pressure, we need some country-specific context. A gifted economist, Draghi took charge of a coalition government to nurse the Italian economy back to life. At the time, Italy was on the brink of collapse due to COVID-19. After Russia invaded Ukraine, economic recovery slowed down and Draghi’s coalition partners saw this as a good time to sabotage him. The center-right Forza Italia of former premier Silvio Berlusconi, the right-wing League of Matteo Salvini and the Five Star Movement led by Conte decided it was time to pull the rug under Draghi.
As support collapsed, Draghi resigned. Italian President Sergio Mattarella promptly rejected Draghi’s resignation. This did little to stop markets from panicking. At a time when eurozone inflation is reaching a record 8.5%, the spreads between Italian 10-year government bonds (BTPs) and German Bunds have risen to new highs. On July 20, Draghi addressed the Italian Senate and declared that he was willing to stay on as prime minister if the coalition parties backed his reform agenda. Unfortunately, the above-mentioned parties did not even have the decency to show up in parliament for the vote of confidence. This forced Draghi to resign despite winning the confidence vote.
Draghi’s final resignation prompted markets to react even worse than before. The Italy-Germany bond spreads shot up to 243 points. They only started to go down again when the ECB announced it would raise interest rates and launched the Transmission Protection Instrument (TPI), a new tool to tackle financial fragmentation in the euro area.
Renewed Credibility and Influence Abroad
With his considerable experience, statesmanlike stature and personal connections, Draghi has restored Italy’s credibility on the European and international stage in his short tenure as prime minister. Thanks to him, Italy successfully led the G20 and COP26 throughout 2021. Italy also (pro)actively participated in G7, NATO, and EU Summits, as well as other high-profile events such as the International Conference on Libya and the Summit for Democracy. Draghi’s deft diplomacy demonstrates how committed he is to strengthening multilateralism and democratic values. As a result, Italy has gained in strength, influence and credibility abroad under his sapient premiership.
How the European Union Lost Italy to the Radical Right
As the political crisis unfolded, Super Mario was still hard at work. On July 19, he spoke with Ukraine President Volodymyr Zelenskyy who thanked Draghi for his “significant personal contribution to granting Ukraine the status of a candidate country for EU membership”. The day before, Draghi was in Algeria where he signed several agreements, including an energy deal enabling Italy to reduce gas imports from Russia. The Italian government has signed similar deals with Angola, the Republic of Congo, Mozambique, Egypt, Bahrain, Qatar, Turkey and Azerbaijan.
In fact, in May the Trans Adriatic Pipeline (TAP) brought 10 billions cubic meters of gas from Baku, Azerbaijan all the way to Melendugno, Southern Italy in the span of a weekend. Similar negotiations with Israel and Libya are ongoing. By seeking to diversify gas supplies and investing in renewable energy projects, Draghi has been trying to reverse decades of dependence on Russian energy. Following Draghi’s resignation, however, Russia has increased its gas supplies to Italy by 71,4% in just one day.
As The Financial Times recently pointed out, Draghi “is (or at least was) shifting the power dynamics within the EU”. Proximity to the Mediterranean Sea and the Middle East and North Africa (MENA) region is no longer perceived as a liability. The risk of increased migration is now trumped by the opportunity of importing non-Russian gas and oil into Europe.
Even as Draghi nudged the EU in a new direction, he deepened ties with France, the outgoing president of the Council of the EU. On November 26, 2021, the two EU founding members signed the Quirinale Treaty, a historic deal to strengthen cooperation between Italy and France.
The agreement is very similar to the Élysée Treaty between France and Germany which celebrates its 60th anniversary next year. The EU’s biggest economy assumed the presidency of the G7 in January. Yet the post-Angela Merkel traffic-light coalition has struggled to speak with one voice and retain its leadership role in Europe. For all its promises to increase defense spending and deliver lethal weapons to Ukraine, Germany is still very reliant on Russian energy. Hence, it has proved reluctant to suspend the Nord Stream 2 Pipeline and support a full embargo on Russian oil and gas.
Until a few weeks ago, Italy was the second largest importer of Russian gas, next only to Germany. Yet the Draghi administration has been bold enough to back all sanctions on Russia proposed by the EU and its North American allies.
Stronger Transatlantic Ties
On the other side of the Atlantic, US President Joe Biden and his administration have been looking at Draghi’s Italy with renewed interest and respect. The recipient of The Atlantic Council’s 2022 Distinguished Leadership Award has proved to be a strong leader and a committed transatlantic partner.
Is Russia’s War in Ukraine Creating a New European Security Architecture?
Draghi has been pushing for the development of a strong European defense to complement NATO and took a tougher stance vis-à-vis both Russia and China than his predecessors long before Russia’s aggression against Ukraine began. In his May address to the European Parliament, the Italian prime minister urged greater European coordination on defense. The economist also made the case for more efficient defense spending among EU member states, something that would greatly benefit NATO as well since 21 (soon 23) EU countries are also NATO allies.
Unfortunately, Draghi did not have it all his own way though. Despite his calls to increase Italy’s defense budget, the Boot will not hit NATO 2% GDP defense spending target until 2028. Nevertheless, in the eyes of US Defense Secretary Lyloyd Austin, Italy remains “one of Europe’s most reliable security providers”.
Last year, Italy celebrated 160 years of diplomatic ties with Washington and also marked 70 years of NATO’s presence on its soil. The country is currently leading the NATO mission in Iraq and is supposed to take the lead of the mission in Kosovo in the fall. Italy’s Eurofighter jets have been stationed in Romania since November 2021 and the country has been supporting NATO all the way from the Baltic to the Mediterranean. In addition, since Russia’s invasion began, Draghi has been striving to provide heavy weapons to Ukraine despite the strong opposition from within his coalition. He has even looked to strengthen defense cooperation with Japan amid concerns that China might be preparing to attack Taiwan.
Thanks to this renewed international credibility, Italy has reclaimed its rightful place within the Quint, an informal framework used by the United States, France, Germany, the UK and now Italy again to discuss and coordinate their foreign policy on matters of common interest.
Political Mayhem Returns
Draghi’s premiership has undoubtedly transformed Italy into a power player in Europe and positioned it to be a stronger and more credible ally for NATO and the US. However, as basketball legend Kobe Bryant once said “Job is not finished”. Draghi needed more time in office to undertake all the reforms envisaged in the NRRP to modernize Italy. Instead, Italy’s best player was fouled by his own teammates and sent to the locker room in the middle of the game. His season is over.
Despite not being an elected official, Draghi enjoyed the support of both politicians and ordinary citizens. Since he first tendered his resignation, there have been protests in Italy’s main cities and petitions signed by nearly 2,000 mayors and governors and 100,000 Italians demanding that Draghi stay on in the nation’s top job until the next elections, originally scheduled for March 2023. Now that Draghi has resigned, Italy will go to the polls in September.
Sadly, Draghi’s ambitions for Italy clashed with the country’s grim political reality. The notoriously Russian-friendly Five Star Movement, League and Forza Italia are jeopardizing Draghi’s hard-fought legacy of credibility for the country. By behaving so irresponsibly, they are throwing Italy into political and economic instability once again. If Super Mario could not change Italy, then no one else can. The premature ending of Draghi’s government is bad news not only for hardworking Italians, but also for the EU, NATO and Ukraine, who might soon lose a key partner in its fight for freedom. In the Kremlin, on the other hand, this is a cause for celebration because whoever is elected this fall will never be as pro-Europe and pro-US as Mario Draghi.
Mr. Prime Minister, you will be missed!
The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.