The shock resignation of Italy’s finance minister, Mario Draghi, comes as two pillars of the European Union are already in weakened positions. Germany’s Chancellor Olaf Scholz and France’s President Emmanuel Macron are already facing major challenges. This crisis throws Italy into political turmoil and exposes extreme tensions between the country and Russia, a country which the Eurozone deems its most important asset. The resignation of Draghi, as well as his parliamentary majority, is a major blow to the European Union. Furthermore, his resignation is a direct response to the Ukrainian conflict and his unwavering support for that country.
The resignation of Mario Draghi comes just weeks after the country’s 5-Star movement withdrew its support in a confidence vote. Draghi had previously said that he would not lead a government without the support of 5-Star, but the move has left Italy in a shambles. Meanwhile, President Sergio Mattarella rejected Draghi’s resignation and Italy’s main stock market is down 2.5% on Thursday.
The Italian government voted to dissolve Parliament to elect a new government, but the decision was not unanimous. Draghi failed to gain the support of his coalition partners and is now expected to serve in a caretaker capacity until the country’s September elections. Meanwhile, right-wing parties are expected to win those elections and form a new government with the Brothers of Italy, and a new government could take months.
After Mario Draghi resigned, Italy’s president dissolved the parliament and declared an early election. The results of the election will likely be announced by the end of September. As a result of this, Italy is now expected to remain in rolling lockdowns through 2020. With this instability, the economy of the country will continue to slow. A new government will need to be elected quickly to avoid further instability.
The Italian government is facing many problems as a result of Covid-19 and is burdened with high borrowing costs. With Spain and Portugal as its largest partners, Italy is the first beneficiary of a post-pandemic recovery plan. Its new leader, who was appointed by the European Central Bank president, is seen as a guarantor of confidence and a guarantor of European solidarity.
Italian bond yields rose in early trade on Monday, as expected. However, the shock resignation of Mario Draghi has already rattled the markets. Italy’s financial structure has been vulnerable to populist parties, and the Italian center-right is dominated by Euroskeptics. However, some of the coalition parties have softened their stance on the EU. The Democratic Party is expected to hold its pro-European position, but it is unlikely to govern.
In the end, it is clear that the Eurozone’s economy needs a bailout. Draghi’s intervention saved the euro from collapse and gave Italy enough time to reform its banking system and rebuild its economy. Italy barely grew since the introduction of the single currency in 1999. The ECB’s rescue plan is crucial to safeguard the currency union and the euro.