Mario Draghi resigned as Italy’s prime minister, throwing the country into turmoil and setting it on course for snap elections in early October.
The former European Central Bank chief delivered his decision to President Sergio Mattarella on Thursday morning. The government will play a supervisory role to manage the ongoing business but its impact will be minimal.
Mattarella, who accepted the resignation, will meet with speakers of both houses of parliament on Thursday afternoon to agree on next steps, which will likely include an emergency vote later in the summer. The ballot could be on October 2. Autumn elections are unprecedented in Italy, a time when parliament usually draws up the annual budget.
Investors’ reaction was clear, with the yield on Italy’s 10-year note jumping as much as 21 basis points to 3.6%, the highest since June. The spread on the equivalent German bond, a common measure of risk, rose to 233 basis points. Italy’s benchmark stock index fell 2.2%.
The resignation throws the country into turmoil just as Europe prepares for recession and Italians grapple with an energy crisis. Lawmakers — now without discipline imposed by the former central banker — must agree on reforms to unlock 200 billion euros ($205 billion) in EU aid.
The fall of Draghi’s government was inevitable after three of his coalition partners withdrew their support in a confidence vote on Wednesday.
Italy’s problems reached boiling point last week when the Five Star Movement, a key coalition partner, boycotted a confidence vote. Draghi said he no longer had widespread support and threatened to resign unless all members of the unity government pledged their support.
Instead, Matteo Salvini’s League and Silvio Berlusconi’s Forza Italia joined Five Star in ousting Draghi on Wednesday after a heated Senate debate, leaving the prime minister with few options but to relinquish his post.
Italian governments are notoriously unstable and Draghi leads the country’s 67th government in just over 75 years. And while Draghi will likely remain caretaker prime minister until the next vote, the government will be dramatically weakened, putting his legislative agenda at risk.
‘The Perfect Storm’
Paolo Gentiloni, the EU’s economy commissioner, warned late Wednesday that “a perfect storm” could be brewing for Italy. The EU needs to assess how the political upheaval will affect the country’s planned reforms and whether it can unlock its pandemic aid according to the agreed timeline.
Tensions were rising between the premier and Five Star leader Giuseppe Conte, a former prime minister who criticized Draghi’s response to the economic crisis and the government’s stance on sending arms to Ukraine. Five Star split last month after members could not agree on how much support they could give Kiev.
Italian teams have now entered campaign mode. Based on current polls, a right-wing coalition led by Italy’s Giorgia Meloni Brothers will win a snap election if its members stay united.
Although Five Star triggered the decline last week by withdrawing government support, its influence continues to wane. The party’s popularity has declined since entering government and it is likely to lose seats in the new elections.