Italy’s president calls snap elections after Draghi resigns as prime minister

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Mario Draghi has resigned as Italy’s prime minister, triggering the dissolution of parliament and urging the country to hold snap elections in September.

Draghi resigned as prime minister on Thursday, a day after the three main parties in parliament boycotted a vote of confidence in his leadership after a bitter parliamentary debate.

President Sergio Mattarella, who formally accepted Draghi’s resignation on Thursday, noted that the early dissolution of parliament – whose term was due to expire next year – should be a “last resort” but the political situation left him with no alternative.

He also expressed concern about Italy’s ability to meet “crucial deadlines” to access its next installments of the €200 billion EU coronavirus recovery fund. The election will take place on September 25th.

Draghi’s departure spells trouble for Italy and Europe at a time of acute economic challenge. The sell-off on Italy’s debt intensified after his departure was confirmed, with the yield on Rome’s 10-year government bond jumping a whopping 0.27 percentage points to nearly 3.7 percent. The yield rose 0.15 percentage points to 3.5 percent later in the day.

These moves widened the gap between Italian and German benchmark returns — a closely watched gauge of market stress — to 2.38 percentage points, reflecting an expansion of more than 0.30 percentage points in just two days. The spread later stood at just over 2.3 percentage points.

“The shocking collapse of Draghi’s government raises important questions ahead of new elections,” said analysts at US bank JPMorgan. “The populist coup against Draghi increases our sensitivity to the risks of unpredictable policymaking,” they added.

After weeks of mounting tensions, Draghi on Wednesday accused some members of his cross-party national coalition of trying to undermine his reform agenda and urged them to get back on track.

But two parties – Matteo Salvini’s Liga and Silvio Berlusconi’s Forza Italia – along with the anti-establishment Five Star Movement led by Giuseppe Conte, boycotted the vote of confidence in his leadership.

Foreign Minister Luigi Di Maio, who led a Five Star strike last month to protest Conte’s sniping at Draghi’s policies, called the government collapse “a black slate for Italy”.

“We played with the future of the Italians,” Di Maio wrote on Twitter after Wednesday’s developments. “The impact of this tragic decision will go down in history.”

Italy’s inflation rate hit 8 percent in June, the statistics office said, its highest level since 1986. Hesitation amid a tight schedule of promised reforms would also jeopardize Rome’s ability to receive the €200 billion EU recovery fund.

Draghi had agreed an ambitious reform plan with the EU to boost competition and cut red tape to make Italy more attractive to invest and ensure the sustainability of its high public debt, now about 150 percent of gross domestic product.

Many of these reforms are expected to be completed by elections scheduled for next spring, but the process is likely to be put on hold.

A FTSE readout for Italian stocks closed 0.7 percent lower after previously falling almost 3 percent. The country’s biggest banks, which are major holders of Italian debt, led the declines, with Intesa Sanpaolo closing 2.8 percent lower and UniCredit slipping 3.4 percent.

The market turmoil came as the European Central Bank announced the first hike in euro-zone interest rates since 2011, as well as new measures to limit divergence between borrowing costs in the bloc’s strongest and weakest economies, including Italy.

Draghi’s exit will also be a setback for the Western alliance against Russia’s invasion of Ukraine. The Italian leader has taken an uncompromising stance on Moscow and was one of the key architects of the tough sanctions imposed on Russian President Vladimir Putin.

Berlusconi, a former prime minister, had close personal ties with Putin, with whom he once vacationed, while Salvini was an admirer of the Russian leader.

Additional reporting from Harriet Clarfelt in London

Letter in response to this article:

Italy’s political upheaval must not become an economic crisis / By Pietro Carlo Padoan, Chairman, UniCredit Group and Former Italian Minister of Economy and Finance, Milan, Italy

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