Italian PM Mario Draghi expected to resign after losing support in ruling coalition

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The national unity government of Italian Prime Minister Mario Draghi was on the cusp of collapse on Wednesday night, throwing one of the world’s most indebted countries into political, and possibly economic, chaos as Europe hurtles toward recession.

Earlier on Wednesday, Mr. Draghi’s demands for reform placed on the fractious parties in his government appeared to gain traction, with the betting that he would remain as leader until the scheduled spring elections.

But later in the day, the centre-right parties – Matteo Salvini’s League and former prime minister Silvio Berlusconi’s Forza Italia – joined the populist Five Star Movement (M5S) in boycotting a confidence vote on his leadership. While Mr. Draghi won the vote, he has always said he would quit as Italian leader unless he had the support of all the parties in his unity government.

Mr. Draghi, 74, the former president of the European Central Bank (ECB) who was appointed Italy’s leader in February, 2021, is expected to submit his resignation imminently to Italian President Sergio Mattarella. Mr. Draghi tendered his resignation last week, after M5S boycotted a confidence vote, but Mr. Mattarella refused to accept it.

During a speech in the Senate on Wednesday, Mr. Draghi said M5S′ boycott constituted “a clear political gesture that is not possible to ignore because that would mean ignoring parliament.”

Francesco Galietti, chief executive of Italian political-risk consultancy Policy Sonar, said on Wednesday evening that he doubted that the President would try to persuade Mr. Draghi to stay, given that he had lost the support of three big parties; the two men are expected to meet on Thursday.

“This is it – the end,” Mr. Galietti said.

Mr. Draghi’s resignation will rattle the Italian, European and global markets.

Italy is the European Union’s third-largest economy and a member of the G7 and G20. But it is in ailing financial health and carries one of the highest debt-to-GDP burdens in the world, at 150 per cent, making it highly vulnerable to increases in interest rates. In recent weeks, as the prospect of political instability became apparent, Italian debt yields began to rise, reflecting fresh doubts about the sustainability of Italian debt.

The ECB is expected to raise interest rates for the first time in a decade on Thursday, after other central banks in a rapid tightening phase as inflation rates climb. The war in Ukraine has helped to send energy and food prices soaring, taking the annual EU inflation rate in June to 8.6 per cent.

European leaders, including French President Emmanuel Macron, had thrown their support behind Mr. Draghi, believing no other Italian leader had the economic skills to stabilize a large economy that was trying to dig itself out of the brutal, pandemic-induced recession.

Italian – and European – industrial leaders also supported Mr. Draghi, as did millions of Italians, many of whom came out in force in recent days trying to build political momentum for him to stay as unelected prime minister. More than 1,500 mayors from across the country and labour leaders also backed Mr. Draghi.

The prospect of his resignation comes at a delicate time for Brussels, which has tentatively agreed to give Italy its €200-billion share of the EU’s €750-billion pandemic recovery fund – Italy is the single-biggest recipient of the funds. But the transfers to Rome are contingent on economic reforms that could fall by the wayside as Italy faces early elections and possibly elects a government whose leaders have a strained relationship with the European Commission.

The EU’s economy commissioner and former Italian prime minister, Paolo Gentiloni, warned that Italy faces “a perfect storm.”

Mr. Draghi lost the support of the three parties over differences on how to handle economic reforms and social-support programs, including a basic income, or minimum salary. M5S supported the basic income, although Mr. Draghi has reservations about it.

M5S and other parties also questioned Mr. Draghi’s commitment to send lethal weapons to Ukraine to help it defend itself from Russian advances. M5S and the League have had close relations with Russian President Vladimir Putin. League leader Mr. Salvini was to go to Moscow last month, but had to cancel because of opposition from the ruling coalition. Russian diplomats said Moscow was to pay for Mr. Salvini’s flight.

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