What’s next for Italy after Draghi’s resignation?

Italy’s prime minister Mario Draghi formally resigned on Thursday, ushering in a period of political uncertainty for the country and the European Union amid a deepening economic crisis and the prospect of energy shortages this winter.

The move might lead to a snap election held as early as September.

The former European Central Bank chief had offered his resignation last week, after a key cost of living bill failed to get the full backing of his national unity government in a confidence vote. But Italy’s President Sergio Mattarella refused to sign off on it, asking Draghi to first address parliament in an attempt to salvage the coalition.

But on Wednesday, the populist Five Star Movement (M5S), Silvio Berlusconi’s centre-right Forza Italia party and Matteo Salvini’s far-right League did not take part in a confidence vote over “rebuilding a pact of trust” in Draghi’s administration.

Draghi, who was hand-picked by President Mattarella to lead a national unity government in February 2021, was meant to lead Italy out of an economic crisis compounded by the country’s spiralling debt, the global pandemic, and now the war in Ukraine. 

The crisis comes at a key juncture. A deadline to draw Italy’s next budget is coming up at the end of the year, and the European Union is facing energy shortages as Russia uses gas in an attempt to put pressure on the bloc over sanctions.

International reaction

Draghi was seen as a guardian of stability in Italy, the EU’s third-largest economy after Germany and France. But Italy, sometimes referred to as the “sick man of Europe” by the international press, has also been a ticking time bomb for the block due to its stagnating economy - which took a further hit from the Covid-19 pandemic, when its public debt ballooned to more than 150 percent of its GDP.

Italian bonds and stocks dropped in value after the announcement, putting pressure on the European Central Bank (ECB), just as it was due to announce its first interest rate hike since 2011. Hours later, the ECB announced raised interest rates by 50 basis points to fight inflation, and announced a new ‘anti-fragmentation’ instrument aimed at supporting heavily indebted countries like Italy.

France’s European Affairs minister Laurence Boone said on Thursday that Draghi’s departure would usher in a "period of uncertainty" and mark the loss of a "pillar of Europe." The Financial Times newspaper wrote that Italy was losing its prime minister “at a perilous moment.”

Snap election could usher in far-right

 Draghi will stay on at the helm of a caretaker government until elections in autumn, Mattarella said on Thursday as he accepted the prime minister’s resignation.

The possible dates for the election are September 18, September 25, or October 2. The final date will depend on when the government is dissolved, as it should be no later than 70 days after that date. 

Elections were due to be held in Italy in the first half of 2023, and political parties had begun vying for popular consensus amid spiralling inflation.

Polls suggest that a right-wing coalition would be likely to win a snap election held in the autumn.

Italy’s far-right, national-conservative Brothers of Italy, a party with neo-fascist origins, made huge gains in local elections held across the country in June, emerging as the strongest party in a coalition that includes Matteo Salvini’s League and Berlusconi’s Forza Italia.

This is mostly due to the party’s decision to stay out of Draghi’s national unity government last year to become the main opposition force. The party’s leader, Giorgia Meloni, could become Italy’s first female prime minister should the coalition win.