Italy’s presidential race revives political risk

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Italian Prime Minister Mario Draghi holds his end-of-year news conference in Rome, Italy, December 22, 2021. REUTERS/Remo Casilli

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MILAN, Jan 24 (Reuters Breakingviews) - The selection of Italy’s next president could mark the return of political risk. Prime Minister Mario Draghi’s technocratic government has brought a degree of calm to the country. Politicians’ inability to agree on a decent presidential candidate makes the former European Central Bank boss a strong contender to be the next head of state. But his elevation could trigger a new political crisis.

More than 1,000 lawmakers and regional representatives start voting on Monday to pick a successor to outgoing President Sergio Mattarella read more . No clear frontrunner has emerged for the position, which gives the incumbent the power to dissolve parliament and pick prospective prime ministers. An implausible bid by former premier and convicted tax fraudster Silvio Berlusconi fizzled out on Saturday read more .

Berlusconi’s retreat increases Draghi’s chances. The former central banker, who was parachuted in to lead a broad coalition government in February last year, does not have the official support of any Italian political party. Some, including Berlusconi and League boss Matteo Salvini, want him to stay as prime minister to fight the health crisis and rising energy prices. Yet his domestic and international standing and lack of political affiliation may propel him into the job.

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Making the switch would mean vacating the prime ministerial office a year before the end of the current legislature. Italy could install another technocrat like economist Enrico Giovannini or select a political leader. Either way, though, the new government would be less united. Internal bickering could slow or dilute the slate of reforms that Italy must enact in exchange for around 200 billion euros of European Union post-pandemic funds. The move could even trigger early elections, the results of which would be hard to predict, leading to more instability as the euro zone’s third biggest economy grapples with public debt worth around 150% of economic output.

Investors are showing some sign of renewed nerves. The difference in yields on Italian and German 10-year bonds, which has remained stable at around 100 basis points for most of the past year, has recently widened to about 140 basis points, though it’s still far from the more than 300 basis point spread reached under the anti-austerity coalition government in 2018. By becoming president, Draghi would act as guarantor of Italy’s allegiance to the euro and to NATO, but possibly precipitate a new political crisis. The presidential riddle has no easy answer.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

CONTEXT NEWS

- More than 1,000 Italian lawmakers and regional representatives will meet on Jan. 24 to choose the successor to Italian President Sergio Mattarella, a process that could involve multiple voting rounds and last several days.

- Former Prime Minister Silvio Berlusconi, who was convicted for tax fraud in 2013, abandoned an attempt to run for president on Jan. 22.

- Current Prime Minister Mario Draghi signalled in December he was open to becoming the next Italian president.

- Both Berlusconi and Matteo Salvini, leader of the anti-immigration League party, have said Draghi should not leave his current job.

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Editing by Peter Thal Larsen and Oliver Taslic

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