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Italy’s last prime minister fell thanks to fights over E.U. money. The new one now has the chance to spend it.

Mario Draghi will have to grapple with deep north-south divisions.

- February 22, 2021

On Feb. 13, former European Central Bank president Mario Draghi was sworn in as Italy’s prime minister. Draghi’s political ascent is tied closely to the dramatic repercussions the coronavirus pandemic has had on the Italian economy. In 2020, Italy’s gross domestic product contracted nearly 9 percent and half a million jobs were lost. Government relief measures for households and businesses ballooned Italy’s public debt, which reached 157.5 percent of GDP in 2020.

The European Union Recovery Plan has earmarked 200 billion euros ($243 billion) in grants and loans to help Italy relaunch its economy. An April deadline to draw up a detailed plan on how to spend the E.U. funds sparked conflict within Prime Minister Giuseppe Conte’s cabinet, ultimately leading to his replacement by Draghi.

Draghi, an economist, is well-respected both in Italy and among E.U. leaders — he received high praise for his “whatever it takes” approach to resolving the euro-zone crisis several years back, when a recession and high public debt levels left Italy and other E.U. members nearly bankrupt. But how did the central bank head then parachute in to lead the country often portrayed as the euro’s weakest link? Here’s the story, and the areas to watch.

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Italy’s politicians grapple with the north-south divide

It’s impossible to understand Draghi’s appointment without a broader reference to long-standing cleavages between northern and southern Italy. Since Italy’s unification 150 years ago, an enduring economic gap between the relatively wealthy and industrialized northern regions and the less-industrialized south — which depends heavily on agriculture and tourism — has characterized Italy’s economy and politics. Underlying tensions re-emerged when the first wave of the pandemic hit the wealthier northern regions harder.

Disparities between the north and south economic models make it difficult to implement a coherent economic policy for the whole country. The Conte government’s reformist agenda, characterized by redistributive and protective traits — including the introduction of a universal citizens’ income — set it apart as the most southern-focused, and left-leaning, government in recent decades.

But the E.U. Recovery Plan exacerbated fears among northern Italian regions and businesses that the relief funds would prioritize redistributive measures and economic recovery in the south, sparking a political crisis and the loss of Conte’s parliamentary majority.

In Draghi’s new cabinet, 18 out of 23 ministers come from northern regions. Unsurprisingly, the northern-dominated business association Confindustria, along with the main trade unions and newspapers, have praised the new government, saluting Draghi as the savior of the nation.

The technocrats strike back

The new Draghi cabinet also weighs heavily toward technocrats. Out of 23 ministers, eight unelected technocrats are in charge of key ministries such as Economy and Finance, Justice and Environmental Transition. The other 15 cabinet positions were divided among the parties supporting the government.

This is not the first time the Italian political system turned to a technocrat when faced with a crisis situation. In 2011, in the midst of the euro-zone crisis, former E.U. commissioner for competition Mario Monti replaced tycoon-turned-politician Silvio Berlusconi, who served as prime minister four times in 20 years. Monti’s government struggled, and his popular support waned within months, after he tried to implement a series of unpopular austerity measures.

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Like Monti, Draghi is depending on technocrats to hold together a quarrelsome parliamentary majority amid a deep political and economic crisis. However, the outlook for the Italian economy looks very different than it did a decade ago, when the country was on the brink of insolvency. Largely thanks to interventions by the European Central Bank, Italy has been sheltered from pressures on the bond markets. Instead of implementing austerity measures, Draghi’s task will be overseeing the redistribution of a record inflow of resources from the European Union.

He has a large majority of unlikely bedfellows

Draghi’s majority crosses ideological divides. It spans the center-left and staunchly pro-E.U. Partito Democratico; the catchall anti-establishment Five-Star Movement; smaller centrist pro-business forces, including Berlusconi’s Forza Italia and Italia Viva, the party of former prime minister Matteo Renzi.

Perhaps most unexpected is the support for Draghi from the radical right, anti-immigrant Lega, traditionally hardly a fan of the E.U. Led by Matteo Salvini, the Lega at one point proclaimed the euro an “ugly experiment,” and in early 2020 labeled the E.U. a “den of snakes and jackals.” What explains this remarkable about-face? Some of this is simple economic interest — administering the bounty of more than $200 billion in E.U. resources has proved to be an attractive prospect for most Italian political forces.

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But Lega support also stems from the influence of northern Italy’s economic interests within the Draghi cabinet. The party emerged in the 1990s in favor of northern Italy’s secession — “Lega Nord” was the party’s original name — and retains its electoral stronghold among northern shopkeepers, professionals and business owners, despite Salvini’s efforts to gain support in the south. These groups favor the maintenance of strong economic ties with the euro zone in the interest of Italian exports, and openly supported the change of government.

Draghi’s agenda, still to be fully defined, will probably align with some key business priorities, such as overarching tax reform and the simplification of administrative burdens, along with Italy’s unwavering commitment to the euro. Many analysts also expect Draghi to implement long-standing E.U. objectives, such as fostering technological innovation and ecological transition through market-oriented “social investment” policies and public-private partnerships for major infrastructure investments.

While the euro-zone crisis made clear that Draghi does not lack leadership capacity, he follows a long line of prime ministers who promised — but failed — to implement an ambitious reform agenda in Italy to heal a divided society and relaunch the economy. It’s too early to tell whether Draghi will be able to address the immediate economic recovery as well as the country’s long-entrenched divisions. Experience suggests that the unfettered enthusiasm of the Italian and foreign press should be tempered with some caution.

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Fabio Bulfone (@FabioBulfone) is postdoctoral researcher at the Max Planck Institute for the Study of Societies in Cologne, Germany. He works on comparative political economy, industrial policy and European integration.

Arianna Tassinari (@Ari_Tassinari) is a senior researcher at the Max Planck Institute for the Study of Societies in Cologne, Germany. She specializes in comparative political economy, labor and employment relations in Southern Europe.