Bello Ciao: Looking Ahead to the 2022 Italian Elections

Mario Draghi’s tenure as Prime Minister of Italy came to an abrupt end on 21 July 2022, after the collapse of his cross-party coalition led to his resignation. The conclusion of Mr Draghi’s two-and-a-half-year stewardship marks the end of a period of relative political and economic stability in Italy, a country which, notably, has had seven prime ministers and eight governments over the past decade.  

Despite widespread popular support for Mr Draghi in Italy, and indeed beyond, Mr Draghi’s government had collapsed after losing the confidence of junior members in the Five Star Movement (5SM), Lega, and Forza Italia, and he found himself unable to stabilise the government following a confidence vote in late July. His resignation precipitates the calling of early national elections, scheduled for 25 September 2022. Until then, Mr Draghi will lead a caretaker government.  

Given the fractured nature of Italy’s political left, the next government will likely be formed by a right-wing coalition led by the far-right Fratelli d’Italia (FdI) party. FdI are neck-and-neck in the polls with the centre-left Partito Democratico (PD). If FdI are involved in government formation, this may bring Italy into conflict with the EU, especially if the party seeks to diverge from the country’s recovery and resilience plan agreed with the EU under Mr Draghi.  

The anticipated period of political uncertainty in the country may have considerable economic repercussions for Italy and for Italian bond spreads, as well as for the Eurozone and the EU as a whole. Italy is the third-largest economy in the Eurozone, with a debt-to-GDP ratio of 150% and is the recipient of the single largest tranche of the EU’s COVID-19 Recovery and Resilience Fund, having received €209bn in loans and grants. There may also be geopolitical, security and energy implications for the EU in the context of Russia’s invasion of Ukraine and the important role that Italy and Mr Draghi played in achieving a unified European response. 

Crossing the Rubicon 

Mr Draghi’s tenure as Prime Minister was generally seen as positive for Italy on the European stage, having helped to increase the country’s visibility and address its relative underperformance at the EU level. This was well demonstrated by Mr Draghi’s joint visit with French President Emmanuel Macron and German Chancellor Olaf Scholz to Kyiv, Ukraine on 16 June 2022 and his role in persuading the French and German governments not to oppose the prospect of Ukrainian membership of the EU. Mr Draghi was also instrumental in formulating sanctions policy against Russia and in securing alternative energy supplies for the EU, including from Algeria. Now that the die is cast and Mr Draghi’s term is ending, whether his successor will have the same standing on the European and world stage is yet unknown. However, a new Italian government will doubtless have a significant impact on critical upcoming EU policy discussions, including as regards proposed new EU fiscal rules. Along with President Macron of France, Mr Draghi had advanced proposals for greater EU public spending and support for debt-financed investments to meet the Union’s green and digital transition goals. Following Mr Draghi’s departure, support for this initiative is unclear – but it is expected that an FdI-led government would be unlikely to support any such proposals.  

The next Italian government will also need to deal with the ongoing (and worsening) economic and social challenges posed by the war in Ukraine, particularly as regards rises in the cost-of-living, which may weaken Italian support for Ukraine and increase support for a settlement which recognises Russian territorial annexations. Linked to this, risks to Eurozone stability may be posed by the possibility of clashes between the European Commission and a new Italian government which may be triggered if Italy’s 2023 budget diverges significantly from current policy and increased public expenditures, such as increasing pensions.  

While Mr Draghi’s government was able to make considerable progress in completing reforms tied to receipt of the EU’s Recovery and Resilience Funds, receiving over €67bn, the remaining two-thirds of funding remains conditional on policy reforms. Whether the new government will have the sufficient political support and credibility to continue meeting reform commitments on justice, education, and tax reform policy is unknown, and a leaked FDI, Forza, Lega proposed coalition manifesto has indicated they would seek to renegotiate aspects of the pandemic recovery agreement, which may initially limit the amount of funding Italy can access and reduce its influence in broader EU negotiations on economic and fiscal governance reforms.  

The ECB has recently unveiled a new Transmission Protection Instrument (TPI), which enables it to purchase and stabilise Member State government bonds if they sharply increase due to non-economic reasons. This may offer economic breathing room for the Italian economy. However, this is essentially a political calculation by the ECB and effectively relies on the government in question being seen as able to meet fiscal sustainability criteria and reform commitments, which the current fractious nature of Italian politics may inhibit. 

Those Who Leave and Those Who Stay 

For Ireland, the political reorientation of one of the EU’s largest and most influential members is a significant development. A new Italian government, which will likely be formed by a right-wing coalition of the FdI, Lega and Forza may bring about a more populist perspective under Prime Minister Giorgia Meloni, who claims to represent a more moderate incarnation of the party. Notably, their more explicitly Eurosceptic policy positions have been dropped. Inevitably, there will be anxieties regarding this coalition’s potentially positive inclinations toward authoritarian governments elsewhere, however, the alliance is divided over attitudes towards Russia, with former Prime Minister Silvio Berlusconi’s Forza now publicly critical of Russia compared to their previously positive disposition, while Lega is more muted. Potential clashes over the supremacy of EU law may raise challenges for the rule of law in the Union and undermine intra-EU solidarity for Ukraine which could weaken the effectiveness and capacity of the EU to act. However, tensions within the right over attitudes on Ukraine and Russia vary significantly, and the ultimate government line will depend on the precise balance of power in any coalition between the FdI, Lega and Forza. In addition, the effective fragmentation of the left, including the split in the 5SM over support for Ukraine, may reduce the room for effective opposition to a new government. While Ireland may not share the more interventionist economic policies of the present Draghi Government, future concerns over commitment to the rule of law and possible blockages to critical competitiveness and economic reforms could have negative impacts across the entirety of the EU. 

For many liberal EU leaders, Mr Draghi’s exit marks the loss of a significant ally and powerful political figure on the European stage. The reputation garnered while President of the ECB and Draghi’s commitment to do “whatever it takes” to save the Eurozone continues to resonate and this stature is reflected in the prestige Italy has recouped since his appointment as Prime Minister. For example, the Quirinal Treaty with France, the Italian Presidency of the G20, Chancellor Scholz’ visit to Rome ahead of Washington or London, Italy’s hosting of a “mini-Mediterranean” summit on EU energy market reform, and the lead role played by Italy in designing sanctions measures against Russia and advocating for Ukrainian EU membership.  

Whether the next Italian Prime Minister and Government will have whatever it takes to match the stature of their predecessor remains to be seen, Mr Draghi’s tenure significantly shaped Italy’s economic course at a moment of great geopolitical and economic turbulence for Italy, Europe, and the world.