Mario Draghi offers to stay as Italy’s PM if coalition partners back reform

Mario Draghi said he was willing to stay on as Italy’s prime minister but that he would only reverse a decision to quit — and prevent the country from tumbling into early elections — if his fractious coalition partners backed his reform agenda.

In an address to parliament, Draghi accused members of his ruling coalition of trying to subvert policies while ostensibly professing loyalty. “The only reason I am here . . . is because Italians have asked me to stay,” he told the Senate. “But are you ready to rebuild? Are you? This is not an answer you have to give me — but you must answer the Italian people.”

His expression of a potential willingness to remain in office gave comfort to markets ahead of Thursday’s crucial meeting of the European Central Bank, which is expected to raise interest rates for the first time since 2011.

But analysts warned it was far from certain that Italy’s notoriously combative political parties would support Draghi in confidence votes due to take place later on Wednesday and on Thursday.

“He was very tough . . . he didn’t show any willingness to compromise,” said Roberto D’Alimonte, a political-science professor at Luiss University, explaining that Draghi had “set up a showdown” with key members of his coalition government. “He said, ‘you accept this, or goodbye’,” he added.

Draghi’s stern message appeared hard to digest by key members of the erstwhile unity government: Matteo Salvini’s rightwing League, and the populist Five Star Movement, whose members notably failed to applaud at the end of the speech. Afterwards, Salvini and his centre right ally, former prime minister Silvio Berlusconi, were due to meet at Berlusconi’s villa to discuss their strategy.

The fate of Draghi’s government is being closely monitored by Rome’s European allies, and rate-setters at the ECB, who fear Italy could plunge the bloc into a period of protracted political instability at a time when the eurozone risks falling into a recession due to Russian gas shortages.

Italian bonds rallied in response to Draghi’s comments on Wednesday, reducing the spread between the rate Rome pays to borrow for 10 years and the German equivalent to slightly more than 2 percentage points.

Italy’s borrowing costs had risen sharply in recent days, as investors grappled with the potential implications of Draghi’s departure and the prospect of early elections that could be won by a hard-wing bloc.

Draghi, a former ECB president, offered to resign last week after Five Star refused to support him in a crucial parliamentary vote, owing to its pique over a planned waste incinerator for Rome. President Sergio Mattarella rejected his resignation, and instead requested him to return to parliament.

Since then, thousands of ordinary Italians, including more than 1,800 mayors, business associations, medical professionals and Rome’s European allies, have publicly appealed for Draghi to stay and help lead the country through the challenges unleashed by the war in Ukraine.

But Draghi’s speech made clear to parties that he was unwilling to stay on any longer if they obstructed key reforms.

“What he is telling them is, ‘don’t think I will accept your campaigning at my expense, or the expense of the government’,” D’Alimonte said. “You have to fall in line and stand by me and my policies for the good of the country.’”

Draghi’s resignation offer was the culmination of mounting frustration at the conduct of political parties that were ostensibly part of his government.

The League supported a disruptive taxi strike last week against a new competition law that had been already negotiated and which must be adopted for Italy to receive its next tranche of EU coronavirus recovery funds.

Salvini and Five Star have also both been lobbying for higher public spending on social welfare measures at a time of intense strain on public finances.

Draghi said such behaviour would have to stop — with parties committing to compromise and to undertake difficult reforms in order to remain on a path to fiscal rectitude — if he was to remain in office.

“Italy doesn’t need a facade of confidence that evaporates before unpopular measures,” he said. “We need a new pact of confidence that must be transparent and concrete.”

Italians have been downcast at the prospect of early elections. A poll by Demos last week after Draghi tendered his resignation found that 27 per cent of Italians wanted elections in the autumn, compared with 65 per cent who wanted Draghi to remain until next year.

Investors expect the ECB to on Thursday announce a new bond-buying scheme to limit the divergence of national borrowing costs between eurozone countries. This is designed to avoid rising bond yields from sparking a repeat of the debt crisis that almost tore the eurozone apart a decade ago.

Additional reporting by Martin Arnold in Frankfurt and Harriet Clarfelt in London