In moments of acute crisis, Italy relies on apolitical technocrats to make difficult decisions and demonstrate the long-term thinking its elected politicians cannot. It thus falls to Draghi to craft Italy's recovery.
In making the switch from law professor Giuseppe Conte to former European Central Bank (ECB) president Mario Draghi as prime minister, Italy is ostensibly transitioning from one independent government to another.
Conte, after all, belonged to no political party. Instead, after taking office as a useful figurehead for the populist coalition government between the left-wing Five Star Movement and the right-wing League, Conte came into his own as a politician a year later, keeping his job even as the League tried to pull the electoral rug out from under him. Mere months ago, Italy’s outgoing premier enjoyed broad public support for his handling of the COVID-19 pandemic, with his popularity exceeding all of the leaders of the fractious party system.
While Conte may have been independent of his populist backers on paper, his economic policies nonetheless reflected the dirigism of the Five Stars who brought him to power. Conte took advantage of his "golden powers" to launch heavy-handed state interventions in the economy. These include a push to have Milan-based Unicredit buy the state’s share of Monte dei Paschi di Siena; the re-nationalization of failing national carrier Alitalia; the hostile takeover of toll road operator Autostrade per l’Italia; and the state’s insistence that broadband operators Telecom Italia (TIM) and Open Fiber merge into one company.
Thanks to Matteo Renzi, Conte is now leaving each of these dossiers half-finished. As Italy looks to Draghi, one of its most renowned financial minds, to lead the country out of dual financial and public health crises, one of the new premier’s first decisions will be whether to continue Conte’s statist economic policies. In both Rome and Brussels, many hope – and expect – the answer will be a simple "no".
Italy’s market guided by a very visible hand
After all, whereas Conte came into office with no political experience or economic track record, Draghi was the architect of the privatisations which energised the Italian economy in the 1990s – and which Conte’s populist backers in the Five Star Movement have invested so much effort in trying to undo. The immediate boost to Italy’s reputation in global financial markets signals just how much Conte’s retrograde statism had damaged the country’s economic credibility: ten-year yields on Italian bonds have dropped to record lows since the announcement of his replacement by Draghi.
Given the context of the economic situation, Draghi is now stepping into, that enthusiasm is easy to understand. Over the past two and a half years, Conte’s government has become infamous for its rough handling of international investors in Italy. Wielding the state-controlled investment bank Cassa Depositi e Prestiti (CDP) as a cudgel, Rome last year sought to name its own price in taking control of Autostrade away from Atlantia, owned by the Benetton family. The highly-publicised spat between the Italian state and Atlantia provoked the ire of shareholders such as Christopher Hohn, who led a number of investors in turning to Margrethe Vestager and the European Commission for recourse against Italian violations of EU law.
Not that Conte and the Five Star Movement were more willing to listen to advice coming from inside Italy. Acting on an idea put forward by former Five Star leader and deputy prime minister Luigi Di Maio, Conte’s government has been adamant that competing broadband providers Telecom Italia (TIM) and Open Fiber must merge their networks into a single entity, just a few years after then-prime minister Renzi’s government-backed the creation of Open Fiber to stimulate competition and help make up Italy’s substantial shortfall in broadband connectivity compared to the rest of Europe.
Despite claims by TIM that its rival is a "failure," the move to encourage competition has worked admirably well, with Open Fiber expanding broadband access to 8.5 million homes in its first three years of operation. In pursuing the merger, Conte’s government disregarded both that record of success and the probability that the European Commission would have to approve any such deal on competition grounds, as Margrethe Vestager confirmed just this month. It also ignored fears voiced by Italian consumer groups that a monopoly in the broadband sector would hurt customers.
Draghi offers a return to sound policy
Against this backdrop of haphazard state intervention, whose only guiding principle seemed to be the inclinations of Conte’s Five Star backers, it was hardly surprising that the now-former prime minister’s ability to manage the €209 billion Brussels is handing over to Rome would raise doubts.
Italy’s tranche of the European recovery package, the largest attributed to any country in Europe, represents a historic opportunity to implement long-overdue reforms in the Italian economy – in the right hands. The last three decades have shown those hands are not to be found in the Italian political class.
Instead, in moments of acute crisis, Italy relies on apolitical technocrats to make difficult decisions and demonstrate the long-term thinking its elected politicians cannot. It thus falls to Draghi, who saved the euro in the midst of the EU’s last economic crisis, to craft a recovery plan that will once again set the foundations for healthy market competition and economic growth in Italy.
While the populist forces which pushed Conte in an overtly statist direction remain powerful actors on the Italian political scene, Draghi will take up the premiership with the experience and understanding to recognise Conte’s attempted restructuring of the market for what it was – an unnecessary, counterproductive distraction from the economic dynamism Italy’s new leader is being asked to deliver.
- Jean Jacques Handali is CEO and administrator of Geneva-based Cosmopolis Conseil