Italy, here we go again!

The ball is passed to Super Mario.

The Italian peninsula is set to face a new political challenge for 2021: a new hybrid government formed by technocrats and bipartisan representatives. 

The task has been handed to Mario Draghi, former president of the European Central Bank and Governor of the Bank of Italy, who is now the new Italian Prime Minister. Will he be able to succeed where his predecessors failed, hence maintaining a stable government in Italy for more than a year — a task which has been unsuccessful in recent years? Moreover, in the midst of a pandemic that has severely hit the country. 

Only time will tell, but Draghi seems the right person at the right time. As we wait for the arrival of monies from the EU Recovery Fund, it’s clear that Rome needs a person who knows how to invest funds without creating economic waste in the public administration. Draghi, made famous to the public by the expressions “Bazooka Money” and “whatever it takes” is set to face a new challenge, possibly the hardest of his long institutional career.

The dismantling of the Conte-bis government

During the night of the 12th of January, the Italian Council of Ministers was set to vote whether or not to approve the Recovery Plan. Renzi, former Prime Minister and now leader of the liberal party Italia Viva, spent months criticizing the possible approval of the Recovery Plan without reform of the ESM Pact of Stability. The task of the ESM is to provide financial assistance to countries in the eurozone that are experiencing (or are at real risk of experiencing) serious financing problems. Assistance is only granted if it is necessary to safeguard the financial stability of the entire eurozone and the ESM members themselves.

Renzi kept his promise. During the night of the Recovery approval he retired the two Ministers coming from his party, opening a new crisis of the government, Conte-bis. It was an action deemed pretentious by all in the Italian political arena, hence taking the ESM as a motivation to bring about the fall of the government.

In the following days, after consultation between the ministers, it became clear that a new government reset was not possible due to the absence of a solid majority. A third new form of Conte’s government would not be supported by the rest of the political actors.

The choice of Mario Draghi

Following the consultations among the former majority, Italian President Sergio Mattarella tapped Draghi on the 12th of February, with the claim that Italy needed a new government rapidly rather than new elections. Mattarella insisted that Italy needed a technical government, not a political one. His suggestion has been effectuated only in part, as the government that received the final approval of the Senate on the 18th of February is composed of 40% technocrats.

Still a better scenario than one involving elections. Mattarella directly addressed his motivations for not choosing a democratic resolution to the crisis. With elections, the activities of the government in office would be reduced, as the parties are all engaged in an election campaign: according to Mattarella this circumstance would be harmful in the coming months, a period that is critical for the situation in Italy — for the coronavirus pandemic, for relations with the European Union, and for the social problems that the country will have to face. A government with reduced activity would not be able to deal with important issues such as the vaccination campaign against the coronavirus, the end of the layoffs freeze that will take place in March, and the negotiations with the European Commission for the use of Recovery Fund money. 

As Draghi — the man who saved the euro from the black hole crisis in 2008 — accepted the task given by Mattarella, a new chaos was set to develop among the political parties of Italy. 

The shift in the majority

A recurrent crisis in the Italian government is certainly a shift in the majority. Still, the one recently set up by Renzi created unprecedented shifts in the Italian political arena. The moderate left instantly gave its support to the new government, a move that is coherent with the pro-European character of the Italian moderate left and with the virtues that Draghi conveys as former ECB President.

On the other hand, the choice of Draghi created a new split in the Italian right. A committed nationalist and sovranist party such as The League set aside its political beliefs, or propaganda, in order to form a majority in which it would be included in the formation of the Council of Ministers. It was a move that has been deemed desperate by the only party on the right that remained in the opposition, Fratelli d’Italia, led by Giorgia Meloni. Salvini, leader of The League, had been harshly critical of  both Europe and the ECB in recent years. Nevertheless, The League underwent a new transformation — being first a party for Northerners, then for Italians, and now for Europeans. Still, the move does not save Salvini, who is currently risking his leadership of the Party to Giancarlo Giorgetti, a strong figure in the Party who is now included in the new government.

The other notable break caused by the shift of the majority was in the Five Star Movement. Renzi, the engine of the crisis, succeeded where other politicians had failed: internally splitting the anti-establishment party from the former majority, the Five Star Movement. The Five Star party reacted to the acceptance of Draghi in three different ways.

Defectors of the party immediately decided to support the formation of  a new majority. Di Maio, Italy’s Foreign Minister, and his group remained uncertain initially, while Di Battista’s group took the same position as  Meloni’s Party. A decision followed with the exit of Di Battista from the Five Star Movement. As Di Maio’s group joined Salvini in the decision to support the new government, both parties lost part of their political credibility. 

Thus, in a turning-the-tables scenario — where the criticizers of Europe now jumped on Brussels’ bandwagon — Italy has a new majority. The parties that now cooperate, such as Partito Democratico, 5SM and The League, were criticizing each other just one month ago. A scenario that makes Draghi’s task even harder in the medium term, in order to be able to finish his mandate in two years.

Draghi’s turn: what are the main focuses of his political agenda?

Draghi’s agenda presents seven main areas of focus, in order to achieve the “Government of Reconstruction,” as named by the new Prime Minister. The seven topics are: fiscal plan, ecology and green transition, innovation and digital transformation, educational reform, efficiency in civil cases, pragmatism in public works and immunity. Seven areas that, if improved, would make Italy more trusted in Europe and more appealing to foreign investors. 

First, a plan to reduce the fiscal burden. Tax reform will be articulated and wide-ranging, which Mario Draghi has mentioned during consultation with the parties. A further reduction of the tax wedge is conceivable, however, under the banner of tax progressivity. If the tax burden on incomes below 40-50,000 euros were to be reduced, the lower revenue could be offset by new rules against tax evasion or by shifting the burden of taxation from income to consumption. The objective is also to rationalize a tax environment more favorable to investment.

The energy transition is one of the pivots of the European plan that has been allocated 209 billion euros over the next six years. The new head of the government has spoken explicitly of a government markedly “environmentalist,” suggesting that all the policies of the executive will calculate the impact on circular economy, emission reduction, and ecological sustainability in the long term. The new minister, Roberto Cingolani, will have to organize the expenditure of at least 77 billion euros, 37% of the Italian Recovery. And together with the new Minister of Infrastructure Enrico Giovannini and the Minister Vittorio Colao, they will have to address the digital transition of the country, and Cingolani will have to develop a long-term strategy for sustainable growth. Calculations in hand, under the direction of Draghi, the three ministers will have responsibility for almost 90% of the funds of the Italian Recovery Plan. It is an enormous project that will have to be set up in the very short term, the next four to six weeks, before being sent to the European Commission with the governance model and timetable.

Digital Transition will be another of the pillars of Mario Draghi’s government program and policies. The new Minister Vittorio Colao, former CEO of Vodafone and head of the first task force on the Recovery Plan (which was desired and then almost ignored by Giuseppe Conte), will have a say on use of 20% of Recovery resources, which is at least 40 billion euros. On these resources he will have decisive power of direction, even though he manages a ministry without portfolio.  It is possible, however, that a greater budget allocation will be provided, given that digitalization and technological innovation will cut across the competences of many ministries, from Cultural Heritage to Health and Tourism. Central to Colao’s plans are completion of the broadband network, complementary with the mobile infrastructure of 5G: a double track that should also lead to modernizing the Public Administration, another key reform of the Draghi government, which was at the top of the requests from the European Commission, along with the reform of civil justice. In Colao’s plans, already down in black and white in the work done by the task force he coordinates, there is also the digitalization of all educational institutions and the wiring of all areas of the country.

Education and human capital are among the cornerstones of the program. In his first days in office, Prime MInister Draghi spoke of a possible increase in the school calendar in order to make up for the lessons lost due to the pandemic. Also planned is a total rewrite of the part of the Recovery plan dedicated to education, with the introduction of zero-cost reforms such as teacher evaluation and the introduction of merit and efficiency criteria, as well as digital training. Also foreseen is an intervention on teaching positions, as there were 10,000 thousand vacant positions at the beginning of the school year.

The area of civil justice also needs reform. Today, inefficiencies in civil cases are one of the causes of low foreign investment in Italy. This will be one of the main reforms to which Marta Cartabia, new Minister of Justice, will devote herself.

Another of the objectives will be that of public works. During the consultations, Mario Draghi spoke of the Genoa model, alluding to the reconstruction of the bridge in two years. In that case, the special commissioner has operated in derogation of any provision of law other than the criminal one, respecting only the provisions of the anti-mafia code and technical standards. They are waiting to start 59 priority works according to a list from MIT. In the sector since 2016, there have been 547 changes and 28 new regulatory measures. A comprehensive reform of procurement would be ripe.

For the vaccination plan, Draghi points to a single national platform and an involvement of the Civil Protection Service. He announced that there is good news coming from Brussels on the production of vaccines, which in part could also be moved to Italy if it decides to purchase licenses. The goal is to get to at least 300,000 vaccines per day, also involving family doctors — 70,000 health care professionals could alone give 400,000 vaccinations per day. All this while waiting for the first Italian vaccine of the company Reithera, which could arrive in June.

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