Italy and the EU after Draghi

The end of Mario Draghi’s tenure as Italian prime minister opens a new phase in Italy’s politics. Draghi’s government of national unity provided the country with political stability at a pivotal moment, steering it through much of the pandemic and putting together a €190 billion plan to use money from the EU’s pandemic recovery fund.
A respected figure, Draghi also boosted Italy’s international influence and became a key figure in EU politics.

Draghi’s absence will be felt at European Council meetings. He vigorously pushed for joint European solutions to challenges such as the looming energy crisis and for a common response to assist EU states and citizens in dealing with the spill-over effects of Russia’s invasion of Ukraine. And, in a break with Italy’s traditionally dovish stance towards Moscow, Draghi has strongly supported Ukraine, backing strong sanctions on Moscow and pushing Italy beyond the comfort zone of its public opinion in supporting Kyiv. Draghi was also a leading advocate of offering Ukraine the status of candidate for membership of the EU.

But Draghi’s government of national unity was never likely to last long. It was supported by a very broad coalition which included the centre-left Democratic Party, the populist Five Star Movement (5S), the right-wing populist League and the conservative Forza Italia. Of the country’s major political forces, only Brothers of Italy, a party with roots in Italy’s post-war neo-fascist movement, did not support him.

The interests of the different political parties making up Draghi’s government were often incompatible, and there was much infighting. Both the 5S and the League saw their support fall during their time in government, and this pushed them to put up resistance to many of Draghi’s policies, including his military support for Ukraine.

Ostensibly, what ultimately sunk the government was a disagreement over measures to assist Italians in dealing with the higher cost of living. But the real reason was that both the League and the 5S thought that they would benefit from disassociating themselves from Draghi.

Draghi’s departure will be followed either by the immediate dissolution of parliament and then elections in autumn, or by yet another technocrat-led government that would tide Italy over to elections next year. But whatever happens in the short-term, Italy’s trajectory will be determined at the next election.

Many of the reforms that Draghi started, like that of Italy’s public administration and its justice system, need many years of follow-up to be fully implemented. If reforms are seen to be stalling, investors in Italy’s debt, which stands at around 150 per cent of GDP, will perceive it as riskier and interest rates would rise, putting Italy’s finances under strain.

The current polling data indicates that the right-wing bloc is likely to win the next election. If the 5S and the Democratic Party do not form an alliance, the right will easily win.

In Italy’s mixed electoral system, the right would gain a very large share of those seats that are allocated on a first-past-the-post basis. If the Democrats and the 5S strike a pre-election alliance, then the right would still be very likely to win. Only a very broad coalition that included the 5S, the Democratic Party, and the smaller centre-left and centrist political parties would be competitive against the right.

However, the spats that led to the fall of Draghi’s government mean that it is difficult to envisage an alliance between the 5S and the Democrats, let alone a broader alliance that included other parties.

A centre-left coalition, with the Democratic Party at its heart, would be the closest thing to a continuation of Draghi’s government. Such a government would be very likely to continue implementing the reforms that Draghi had launched, reassuring financial markets and investors in Italy’s debt.

In terms of foreign policy, a centre-left coalition would have a pro-European and Atlanticist outlook. Like Draghi, it would strongly support joint European solutions to the challenges arising from the conflict in Ukraine. A centre-left government would be seen as a partner in the other main European capitals and could have influence in shaping broader European debates.

The more likely right-wing coalition, probably with Brothers of Italy’s charismatic leader Giorgia Meloni as prime minister, would signal a period of more turbulent relations between the EU and Italy.

Neither of the big parties of the right, the League and Brothers of Italy, are calling for an exit from the EU or the euro. But their supporters tend to be eurosceptic and both parties are highly critical of the EU, viewing it as overtly bureaucratic, overreaching and lacking in legitimacy.

A right-wing coalition would come to power promising tax cuts and increased social benefits. Its ability to implement these promises would be limited, but even a half-hearted attempt to do so could deal a significant blow to Rome’s perceived commitment to sound fiscal policy and reform. Investors would demand a higher interest rate to buy Italian government debt and the ECB would be faced with difficult choices in terms of how much Italian debt it could buy.

A right-wing coalition would have a strong incentive to continue with the reforms that Draghi began, because disbursements from the EU recovery fund are tied to progress with reforms. Nevertheless, the pace of reforms may slow and there would likely be disagreements with the European Commission about the disbursement of funds.

At the same time, efforts to change the EU’s fiscal rules in ways that allow for more investment would be more difficult, because other EU countries would have little trust in an Italian government that was critical of the EU and that pursued a loose fiscal policy.

There would be ample scope for disagreements between a right-wing coalition and the EU institutions in many policy areas. For example, Brothers of Italy says it wants to reassert the supremacy of Italy’s constitution over European law and has called for an ‘Italians first’ approach to accessing social services and benefits. In migration policy, a right-wing government would demand solidarity in taking in migrants arriving in Italy, but this would be rejected by other member-states.

The war in Ukraine has forced Brothers of Italy and the League to disown their past sympathies for Putin. The League has not always been keen on NATO, but both Brothers of Italy and Forza Italia are strongly Atlanticist. A right-wing government would not undermine the EU’s sanctions on Russia and would continue to support Kyiv. But it would oppose a toughening of sanctions, and military support for Ukraine might be curtailed due to the League’s scepticism about arms deliveries.

The risk of conflict between a right-wing coalition and the EU should not be over-estimated. A right-wing government would not necessarily follow through with its more controversial election promises. It would also be constrained by internal divisions, with large parts of the League and Forza Italia unwilling to pursue a course of overt confrontation with the EU. At the same time, Italy’s constitutional system, including its president, would also act as a check on the government’s policy choices.

Draghi’s departure will deal a big blow to Italy and the EU ahead of a very difficult period. Draghi has left Italy in a stronger position that he found it when he became prime minister in February 2021. But it will be up to his successor, whoever they may be, not to squander his legacy.

By Luigi Scazzieri, Senior Research Fellow at the Centre for European Reform.