Difficult tasks lie ahead for Mario Draghi
Mario Draghi agreed to the request from Italian president Sergio Mattarella to form a government and will now begin discussions with the leaders of the different political parties.
The question is obviously if it will change anything for Italy, both in terms of political stability and in terms of future economic developments.
Assembling a new coalition will be very challenging, even for someone as respected as Mr. Draghi. Lega and right-wing allies have no interest in helping him, with Mr. Salvini saying he would prefer an election. Will 5 stars agree to collaborate? They have declined a lot in popularity since the Conte led coalition was formed in June 2018 so yes, it is conceivable, but the coalition will not be very stable. In the end, the coalition will rely on the support of a disparate selection of smaller parties and will have at best a small majority in parliament. In the end, it will be the same coalition as Mr. Conte, and difficulties will come back very quickly on how Italy should spend the €209bn it will receive over the next few years from the European Union.
Italy is required to present its “recovery and resilience” plan to Brussels by April in order to get the first payment and will have to respect some criteria to secure the release of subsequent tranches. Some of those criteria (not fully disclosed yet) will rely on structural reforms like taxation or pension schemes, which is very controversial in Italy and which could lead to the collapse of the newly formed coalition.
The task of Mr. Draghi is very difficult to say the least. He will have to use his influence to persuade European partners to ease the different conditions on future disbursements and push for some more lenient reforms domestically. We are not sure that Mr. Draghi will be able to really make a difference over the long term, but he could probably give Italy some stability in 2021.
by François Rimeu, Senior Strategist, La Française AM.
This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.