The man widely credited with averting an earlier calamity will face the challenge posed by Europe’s sickest and most worrying major economy, which is in the throes of a recession that goes far beyond anything seen a decade ago. And whereas Draghi, in his first battle, could rely on the mighty powers of bond-buying and quantitative easing, he must now try to harness an unruly political system that has left one Italian prime minister after the next short of his pledges.
Draghi is only on the cusp of taking the job — he is expected to soon unveil his cabinet — but his arrival amounts to a test of whether a technical expert can pull off another rescue, this time as a politician. It’s also a vital moment for Italy, which has languished for years, sometimes flirted with the idea of bailing on Europe, and is now turning its trust to a consummate member of the European economic class.
“Draghi is like a deus ex machina figure,” said Charles Grant, the director of the Centre for European Reform. “But reforming the Italian [system] is very, very difficult.”
The challenges in Italy, emblematic of those across southern Europe, combine long-running aspects with emergency ones. Even before the pandemic, the economy was falling farther and farther behind industrial powers in Europe’s north, with youth unemployment twice that of the European Union average. The coronavirus pandemic exacerbated the gap. The tourism industry — 13 percent of Italy’s economy — collapsed. A slow vaccine rollout, coupled with a national death toll nearing 100,000, provide painful reminders that the pandemic is far from over.
But for a nation in its most peril since World War II, Draghi’s sudden emergence, after he was picked by Italy’s president to form a majority, has caused most Italians to quickly imagine a possible resilience. Draghi’s approval rating is even higher than it was two weeks ago. Parties with long-held Euroskeptic views have found rationale for quickly rallying behind him. Draghi will enter office with a broad, left-to-right majority, and even while he works to rehabilitate Italy’s economy, he could immediately improve the country’s sway on the international stage.
Given his ties to the highest levels of American finance and a close relationship with outgoing German Chancellor Angela Merkel, some pundits have talked about Italy assuming a third spot, among Germany and France, among European decision-makers. Mujtaba Rahman, the Eurasia Group’s managing director for Europe, said on Twitter that Draghi could upend the power-dynamic between Europe’s richer north and poorer south, by being an exemplary reformist, slashing red tape and transforming Italy’s sclerotic labor market.
Relative to prior Italian premiers, Rahman wrote, “Draghi is a different beast.”
Others have put Draghi’s appointment in make-or-break terms for the country.
Giulio Sapelli, an economist and acquaintance of Draghi, said that if Draghi hadn’t come on the scene, Italy would have been at its “end,” losing its place among the world’s “medium powers.”
Draghi, 73, is generally regarded as quiet and press-shy. He largely owes his reputation in Italy to his work during the financial crisis. Experts who closely followed his decisions say he pushed the boundaries of how Europe’s central bank could perform, and regularly butted heads with German officials — aside from Merkel — who felt he was moving too rashly or speaking without consensus. All the while, he had to juggle the interests of 28 member nations.
“He’s a shrewd diplomat who pulled an exceptional balancing act,” Sapelli said.
His most-cited remark from eight years leading the central bank — that he would do “whatever it takes” to stem the crisis — was an ad-libbed comment, according to a book by Timothy Geithner, the former head of the U.S. Treasury. That comment marked a turning point in calming market anxiety.
Former Greek Finance Minister Yanis Varoufakis, who battled with Draghi during Greece’s contentious bailout, said Draghi, along with Merkel, were the two people “running Europe.” Varoufakis says that Draghi was one of only two or three people in European institutions who were “not incompetent,” and called Draghi “smart and efficient.”
“But at the same time, he is a political operator that has no compunction whatsoever,” said Varoufakis, who is now the leader of the left-wing Greek party MeRA25. “He will tread on bodies.”
Italians, in their enthusiasm for a Draghi-led government, have seemingly forgotten about some of their earlier resentments. When Draghi was just entering his job at the European Central Bank, he co-wrote a then-secret letter to the Italian government — later leaked by the Italian press — demanding changes to labor laws and “expenditure cuts.” As Italy’s borrowing costs soared, then-Prime Minister Silvio Berlusconi stepped down.
The austerity measures, some of them implemented by Berlusconi’s successor, were unpopular. Over the next few years, with southern Europe’s economies still under stress, a new wave of Brussels-bashing political parties began to emerge in Italy and elsewhere across Europe. The Five Star Movement, led by a comedian-turned-politician, started petitioning to pull Italy out of the euro, and filled its official blog with biting depictions of Draghi. The League, which had once advocated for northern Italy’s succession, instead refashioned itself as a far right national party, redirecting its ire toward immigrants and the EU. The League’s leader, Matteo Salvini, said in 2015 that people in Brussels, armed with “spreads and finance,” were “worse that Mussolini.”
The League and Five Star Movement are now the two biggest parties in Italy’s parliament.
But for those parties, and most of the others, Draghi was an offer they couldn’t refuse. The League’s base, in the industrialized north, liked the idea of an economist managing a recovery — and handling the more than 200 billion euros in grants and low-interest loans that Italy will receive from Europe. The Five Star politicians had their own incentive to back Draghi: If they’d refused — and he’d failed to form a government — new elections would marginalize a party that has lost its place as the country’s most popular.
Draghi was appointed by Sergio Mattarella, the president, only after the previous administration, led by Giuseppe Conte, had collapsed. Draghi was offered as something of a save-the-nation proposal, and Mattarella said it was urgent to have a competent government amid the crisis.
Now, Draghi has a breadth of support nearly inconceivable for an Italian leader. But there are reasons for caution. The recovery money coming from Europe will be spread out over years, and barely makes up for a lost year of tourism. Though he’ll have the boon of investing that funding, he’ll also face potentially brutal decisions, including whether to extend a moratorium on layoffs that has delayed some of the personal pain of the recession. If Draghi’s popularity wanes, parties on the left or far right could quickly back away, pundits say.
Ticking off the list of people that Draghi would have to keep happy, Varoufakis said there is “there’s no doubt there will be discontent.”
