Italian politics is seeing a lot of turmoil recently with Italian PM Mario Draghi offered to resign on Thursday after political opponents refused to work with him. The President of Italy has rejected the resignation and asked Mario Draghi to communicate with the Parliament on Wednesday next week. There’s going to be lot of behind the scenes maneuvering as members of parliament are going to persuade Mario to stay or to prepare Italy to have early elections.
Draghi’s major achievement is keeping Italy on track with the European Union’s post pandemic reforms. Italy had received 200 billion euros in pandemic recovery assistance and this helped Italy recover and maintain their economic growth. There is lot of uncertainty and anxiety with the shape of the new government and what lies ahead. Mario Draghi is someone who is very competent and can be counted on to maintain fiscal rectitude. Markets would feel more reassured if Draghi stays in power and sees through the next budget.
There is going to be a lot of market anxiety and there is a growing concern in the markets about the sustainability of Italy’s growing public debt. Bond yields are rising and the difference in the spread between Italian government bonds and German government bonds is widening. This is a sign of markets are increasingly anxious about Italy’s financial situation, which in turn will put a further pressure on the European central bank and the Euro.