Italy was plunged into political unrest on Thursday when Prime Minister Mario Draghi offered his resignation following a split in his government of national unity.
The former president of the European Central Bank said conditions were no longer imposed for him to move forward after the populist Five Star Movement refused to support his government in a critical parliamentary vote.
His resignation was quickly rejected by Italian President Sergio Mattarella, who asked Draghi to go to parliament next week to assess the support his government would have. The rejection creates time for the Italian political class to try to fix a compromise to prevent the country from falling in early elections.
But the events of the day raise growing doubts about the longevity of the broad coalition Draghi has led since early 2021.
“Most of the national unity that had supported this government since its inception is no longer there,” Draghi said in a statement as he offered to resign.
“From my inauguration speech, I have always said that this executive would only move forward if there was a clear prospect of being able to carry out the government program in which the political forces had voted their confidence,” he said. “These conditions no longer exist.”
Italian shares were sold on Thursday, with an FTSE indicator of the country’s shares falling 3.4 percent. The yield on 10-year Italian government bonds rose 0.11 percentage points to 3.24%, widening the gap with 10-year German yields as investors demand a rising premium to maintain debt Italian.
The crisis erupted after Five Star, the second-largest party in parliament, boycotted a vote on a € 26 billion package on Thursday aimed at protecting Italians from the impact of worsening inflation.
Five Stars leader Giuseppe Conte said he could no longer support Draghi’s government, which he accused of not doing enough to help families facing rising food and energy costs.
“I have a great fear that September will be a time when families will face the option of paying the electricity bill or buying food,” Conte said after a party meeting on Wednesday.
Five Stars leader Giuseppe Conte © Massimo Percossi / EPA / Shutterstock
Despite the boycott of Five Star lawmakers, the aid package was approved in the Italian Senate by a comfortable majority. However, Draghi had previously said he would only lead a government of national unity and would not continue without Five Stars, which was the largest party in parliament until a split last month.
Uncertainty comes at a sensitive time for Italy, which is expected to be the main recipient of the EU’s 750 billion-euro Covid-19 recovery fund.
Early elections would raise doubts about Italy’s ability to approve its budget in the autumn and enact critical reforms to help accelerate the country’s long-term growth trajectory, on which the dispersion of EU money depends.
Paolo Gentiloni, EU economy commissioner, told Italian media that Brussels was watching the political crisis “with worried surprise”.
Enrico Letta, leader of the center-left Democratic Party, said lawmakers now had to unite to try to prevent Draghi from leaving the post at a time of growing economic hardship.
“There are now five days left to work for Parliament to confirm its loyalty to the Draghi government and Draghi and Italy to get out of this dramatic mess as soon as possible,” he wrote on Twitter.
Draghi, who as president of the ECB was credited with saving the euro during the eurozone financial crisis a decade ago, called on Mattarella last year to become prime minister to lead the country still facing the pandemic.