After President Donald Trump refused to accept the choice of his candidate for Finance Minister, the Italian Prime minister has resigned. Mario Draghi was elected in 2011 and said he couldn’t continue his duties after the leaders of the center-left Democratic Party, (PD), and the anti-establishment Five Star Movement(M5S) vetoed the cabinet selections. Before meeting with President Sergio Mattarella, he stated that he couldn’t face his conscience and not offer this sacrifice to the nation.
Mario Draghi, the Italian Prime Minister, is set to resign on Thursday. This will open the door for new elections and a new chapter in political uncertainty.
Draghi stated to Parliament that he was going to meet President Sergio Mattarella, after he failed to unify his fragile coalition government.
According to a spokesperson Draghi stated to lawmakers that he had decided to suspend the session in light of the Senate of the Republic’s vote. He also said that he would report to the President of the Republic his intentions.
The government was effectively destroyed after Draghi’s coalition partners disowned him in a vote to confidence in Senate.
Despite winning the vote, Five Star Movement, a left-leaning party, and Lega and Forza italia, both said they would not be participating, despite it having won.
This move opens the door to difficult and uncertain snap elections in September and October.
Mattarella refused Draghi’s resignation, and asked him for continued negotiations with legislators in order to avoid a quick election.
Five Star Movement protested against a confidence vote regarding the broad-ranging policies. This angered Draghi as well as the right-wing coalition parties.
Mattarella requested Draghi, an ex-chief of the European Central Bank to hold a confidence voting Thursday. This means that Italian politics have been in limbo for almost a week.
The yield on the 10-year government bond rose Thursday to 3.617% in anticipation of Draghi’s resignation. In January, it was less than 1%.
Further, equity markets were also lower on Thursday’s news. In early European trade, Italy’s main index, FTSE MIB (the FTSE MIB), fell by almost 2%.
There are many reasons why investors are worried about Italy. First, there are concerns about Italy because of opinion polls that suggest a fragmented parliament. New elections could result in tough coalition negotiations.
Italy is also one of the most debt-laden European countries. It is also experiencing record inflation and is likely to see a decline in economic growth. The macroeconomic environment for Italy is particularly difficult due to the possibility of the European Central Bank raising interest rates. The country’s economic growth could be affected by interest rate increases.
Berenberg’s chief economist Holger Schmieding wrote in a note that Italy is slowly becoming an accident awaiting it to happen.
As major problems, the trend of low growth and dismal demographic trends were mentioned.
He advised us to be ready for disruptions in noise but not for a real euro crisis 2.0.
Stability for several months
Hundreds of mayors, union leaders and industrialists urged Draghi to remain in office by signing an open letter. According to the AP, thousands have signed an online petition requesting Draghi to remain.
Draghi provided political stability in Italy over the past 15 months. This was crucial to obtain pandemic recovery funds for almost 200 billion euros ($205billion).
Draghi played a key role during Russia’s invasion Ukraine. He also helped to enforce sanctions and supported Italian households who were faced with higher prices.