Analysis: Draghi takes the reins as Italian PM, now comes the hard part

[February 13, 2021]  By Angelo Amante

ROME (Reuters) - Italians' hopes in Mario Draghi could hardly be higher. But the former European Central Bank chief, who was sworn in as the country's new prime minister on Saturday, will have a tough time fulfilling them.

His main tasks will be the efficient management of over 200 billion euros ($241 billion) Italy expects from a European Union fund to help the bloc's recovery, and ensuring smooth progress of the COVID-19 vaccination campaign.

Draghi has several advantages. He comes to power with one of the largest majorities of any government in Italy's post-war history, huge international prestige and an approval rating of 71%, according to a survey published this week.

But his broad parliamentary backing may also be a problem.

He will have to manage an unwieldy coalition made up of parties from left to right, including traditionally bitter foes such as the 5-Star Movement and Silvio Berlusconi's Forza Italia, the right-wing League and centre-left Democratic Party.
 

Giovanni Orsina, head of the LUISS university school of government in Rome, said Draghi's popularity and credibility will assure him of an easy ride at the beginning.

"The party system is difficult to manage, but Draghi, with his prestige, can make it hard for them to thwart him," he said.

Party horse-trading over cabinet posts is normally a central part of forming an Italian government, yet Draghi unveiled his ministerial team on Friday without any apparent negotiations or opposition from the coalition parties.

His picks will not have pleased everyone, however, and it may be only a matter of time before resentment and dissatisfaction surface.

RECOVERY PLAN

Draghi's first job will redrafting Italy's Recovery Plan, which must be handed to the European Commission by April to tap funds desperately needed to revive the recession-hit economy.

The Commission will disburse the money in instalments dependent on the government reaching milestones and meeting benchmarks.

The previous government of Giuseppe Conte was brought down partly by squabbles over how to manage the plan and which projects to include, so Draghi will want to swiftly stamp his authority on a revised version.

Italy has a dismal track record of using EU funds and making productive investments in its economy, with projects often bogged down by red tape or hit by corruption probes.

"We need to accelerate the procedures. It's unthinkable to achieve what we have to with the slowness of our bureaucracy," Enrico Giovannini, Draghi's new infrastructure and transport minister told Reuters shortly before his appointment.

It will not be easy for the prime minister to overcome these deep-rooted problems, but his past performance at the Italian Treasury, the Bank of Italy and the ECB shows he can act decisively and effectively.

 Incoming Italian Prime Minister Mario Draghi leaves after a meeting with Italian President Sergio Mattarella at the Quirinale Palace, in Rome, Italy, February 12, 2021. REUTERS/Remo Casilli

As Treasury chief he earned the moniker "Super Mario" for his whirlwind activity in spearheading privatisations and his role in Italy's preparations for monetary union.

After a stint at Goldman Sachs in London he then reorganised the Bank of Italy, cutting its number of branches, before earning international acclaim at the ECB where he is credited with saving the euro through the bank's asset-buying programme.

"Draghi has shown he can be a great innovator and effectively lead complex organisations like the Bank of Italy and the Eurosystem of central banks," said Angelo Baglioni, economics professor at Milan's Cattolica University.

CREATIVE DESTRUCTION

Aside from the Recovery Plan, analysts are looking for clues to how Draghi will go about broader reforms of Italy's chronically sluggish economy.

Some indications may be found in a December report by a G30 working group he co-chaired which urged an end to state aid for firms whose fate has been sealed by COVID-19, suggesting there could be painful medicine in store.

The report calls for "a certain amount of 'creative destruction' as some firms shrink or close and new ones open, and as some workers need to move between companies and sectors".

Reviving the economy will be closely linked to vaccinations and how the pandemic develops.

"Lockdowns can't last forever and vaccines are the only way to reduce health expenditure, because sick people cost money," said Fabrizio Pregliasco, a prominent Italian virologist.

On this front, Draghi inherits a situation which is broadly positive, with infection rates currently stable and pressure on hospitals relatively manageable.

After initial problems due to supply shortages, Italy's vaccination campaign is also going smoothly, with almost 80% of doses so far received having been administered to patients.

Nonetheless, Draghi has no room for complacency and may face problems managing the frequent clashes between central government and the powerful governors of Italy's 20 regions who have a major say over health policy.

Economist Tito Boeri, a former chief of the state pension system, urged Draghi to claw back control over healthcare.

"Vaccinations require an unprecedented effort ... it takes commitment and an organizational structure that needs to be largely centralized," Boeri said.

($1 = 0.8270 euros)

(Additional reporting by Gavin Jones; Editing by Gavin Jones and Catherine Evans)

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