Draghi dangles resignation, just when Europe needs him

With Italian Prime Minister Mario Draghi’s premiership on the brink of collapse, the European Union may be about to lose one of the last grown-ups in the room.

Draghi, 74, is credited with saving the euro during the financial crisis and has played a crucial role in stabilizing the EU’s third-biggest economy as the bloc faces an energy crunch and war on its doorstep.

But a domestic political feud within his coalition government proved too much for the Italian leader to tolerate and he announced on Thursday that he was offering to resign. His resignation was instantly rejected by Italian President Sergio Mattarella, but the drama is not over.

A confidence vote will now be held next Wednesday to test whether the government can continue. It’s far from clear that Draghi’s alliance will survive.

Italy’s political turmoil will be felt throughout Europe at a critical time, as EU leaders grapple with how to respond to Russia’s invasion of Ukraine, rampant inflation and a coronavirus resurgence.

The collapse of Draghi’s government would risk triggering “the destabilization of Europe,” declared Antonio Saccone, a senator in the Forza Italia party in the Senate, as the political drama played out in Rome on Thursday. “You’d be doing a favor to Putin,” he told Draghi’s critics before a key vote in parliament.

The crisis blew up after long-running tensions between Draghi and his coalition partners in the populist 5Star Movement boiled over. After weeks of increasingly bad-tempered talks, the 5Stars walked out and refused to back one of Draghi’s signature economic plans in what the prime minister said amounted to a vote of no confidence in the coalition.

The prime minister immediately went to visit Mattarella to discuss his future before offering his resignation. If Draghi does eventually leave office, it would open a period of instability and the specter of early elections in Italy.

Yet even if Draghi’s government survives, this episode may simply be the first of many power struggles as parties working in the fractious coalition escalate their demands ahead of next year’s elections.

Financial markets reacted with concern on Thursday as the crisis deepened. The euro fell against the dollar and the spread between the yield on Italian and German bonds — seen as a key indicator of risk — rose.

While market jitters will impact on Italy’s economy hardest, politicians and analysts warn that the damage from Draghi’s departure would reverberate throughout the region.

A former president of the European Central Bank, his authority on economic matters has helped him assume a pivotal role in discussions among European leaders, said constitutional lawyer and Democrat lawmaker Stefano Ceccanti.

“German Chancellor Scholz has only recently come to power and Macron won the election in France but is weakened,” Ceccanti said, referencing the French and German leaders. “After that Draghi is the most important.”

An Italian leading in Brussels

If Draghi goes, his leadership in Brussels would be missed. Among his unfinished business, he has championed a reform of the EU’s fiscal rules, teaming up with French President Emmanuel Macron to form a plan that has not yet come to fruition.

Additionally, plans to tackle the energy crisis, including a support package to reduce the impact of soaring prices on consumers and businesses could be harder to address without Draghi, according to Wolfango Piccoli, a political analyst at Teneo.

At a European level, Draghi has also been pushing hard for a price cap on oil and perhaps even gas, hoping to reduce the rising payments going to Russia. Russian President Vladimir Putin is still funding his invasion of Ukraine from the billions earned selling the EU fossil fuels, even as the bloc rushes to reduce its purchases. While Draghi’s price cap idea has detractors, it will feature in EU leaders’ discussions in the months ahead.

“These are the kind of initiatives where Draghi could make a difference,” Piccoli said. “He would be listened to in Europe and he can speak to Biden directly. So it could be a loss for Europe.”

Then there’s the question of where a change of government would leave Italy.

Draghi was originally drafted into office in early 2021 to draw up and implement Italy’s post-pandemic economic recovery package of loans and grants from the EU. These were tied to wide-ranging reforms, which Draghi’s leadership was seen as vital to delivering.

As the biggest recipient of the EU funding, Italy is a key test case for the program’s success: If the fund is to become permanent, it must be seen as a success there.

For some, Draghi remaining in office could also help guarantee continuity of European policy on Ukraine.

In his maiden speech, Draghi declared his government pro-NATO and pro-EU, and he has been seen as one of the most hawkish European leaders toward Moscow, demanding other European countries get tougher on oligarchs and championing Ukraine’s bid to become a formal EU candidate. His exit would risk weakening the Western alliance. 

For others, though, Draghi’s hardline on Ukraine has been mostly talk. Italy’s contribution to military support and financial support has been small compared to other states.  

Maurizio Gasparri, a senator in the Forza Italia party, played down the impact of Draghi’s potential exit, pointing out that his time is limited anyway by the end of the legislature in 2023, and noting that other countries have also held elections amid the pandemic and energy crisis.

Draghi should not be forced to stay because Italy fears elections, he said: “We will vote anyway by next year, we cannot suspend democracy in Italy.”

In the short term, whether Draghi departs is uncertain.

5Stars leader Giuseppe Conte had on Wednesday indicated that his party still wanted to support the government, although it did not support the economic package in Thursday’s vote. 

But if Conte’s party decides to leave the government, Draghi has said he does not want to lead another without the 5Stars. The right-wing League has also suggested it favors elections.

If Draghi loses next week’s confidence vote, the president may call snap elections. But if Draghi wins and is induced to stay on, many insist it will be not just in the national interest, but in the interest of Europe for him to stick around.

“The role of Draghi in Europe,” said Ceccanti, “is the strongest reason for Draghi to stay.”