Italian Prime Minister Mario Draghi has resigned, ending a government of national unity formed to deal with unpopular reforms and spelling problems for Europe at a time of severe economic challenges.
In a statement, President Sergio Mattarella’s office said Thursday that Draghi would continue to be in charge of the news. Mattarella is now expected to dissolve parliament and announce early elections.
Draghi’s national unity coalition, established early last year in the depths of the Covid-19 crisis, fell apart on Wednesday after a resentful parliamentary debate. Its exit comes as the eurozone’s third-largest economy faces growing challenges, such as slowing growth, inflation and rising borrowing costs.
“After yesterday’s debate I have drawn my conclusions,” Draghi said during a brief appearance in the lower house of Parliament before his meeting with the president.
The 10-year Italian government’s yield rose 0.14 percentage points to 3.52 percent as its price fell sharply on Thursday. This move brought the gap between 10-year Italian and German benchmark yields, a closely monitored market stress indicator, to 2.26 percentage points, reflecting a 0.22 percentage point increase in just two days.
In Wednesday’s parliamentary debate, Draghi accused some members of his multiparty coalition of trying to subvert his reform agenda and demanded that they re-engage.
But two center-right parties – Matteo Salvini’s League and Silvio Berlusconi’s Forza Italia – along with the populist 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 march last month in protest of Conte’s snipers against Draghi’s policies, called the government’s collapse “a black page for Italy.” .
“We have played with the future of the Italians,” Di Maio wrote on Twitter after Wednesday’s events. “The effects of this tragic election will go down in history.”
Italy’s inflation rate reached 8% in June, its highest level since 1986, according to the statistics agency. The failure of a tight schedule of promised reforms would also jeopardize Rome’s ability to receive the next tranche of its € 200 billion in funds from the EU’s Covid recovery program.
Draghi had agreed on an ambitious timetable for reforms with the EU with a plan to improve competition and reduce bureaucracy to make Italy more attractive for investment and to ensure the sustainability of its heavy public debt, now around 150 per cent. percent of gross domestic product. .
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Many of these reforms were expected to be completed in the elections scheduled for next spring. But the process is likely to stall as parties prepare to campaign for early elections.
An FTSE indicator of Italian equities fell more than 2 percent in morning transactions, bringing its losses over the past two days to nearly 4 percent. The country’s largest banks, which are the main holders of Italian debt, led the falls, with Intesa Sanpaolo and UniCredit each about 5 percent.
The tumult in Italy’s bond markets comes when the European Central Bank is expected to raise interest rates in the eurozone on Thursday for the first time since 2011 and announce new policies to limit the divergence between borrowing costs of the strongest and weakest economies in the bloc. including Italy.
Draghi’s departure will also be a setback for the Western alliance against Russia’s invasion of Ukraine. The Italian leader has taken an uncompromising stance towards Moscow and was a key architect of harsh sanctions against Russian President Vladimir Putin.
Berlusconi, a former prime minister, had close personal ties to Putin, with whom he once went on holiday, while Salvini has been an admirer of the Russian leader.
Additional report by Harriet Clarfelt in London and Silvia Sciorilli Borrelli in Rome