While Mario Draghi is talking with the parties to understand whether it will be a technical or political government, the ten-year BTP sees the yield rise from 0.55% yesterday to 0.59%. The markets today are cautious, they try to understand if the former governor of the ECB will be able to combine Parliament towards a single project for Italy. Goldman Sachs’ report on the country focuses on this. Indeed, American analysts write that, “surprising most observers, President Sergio Mattarella has decided to invite Draghi to form a new government, skipping the common convention of a further round of meetings with the parties in Parliament”. The banker accepted the invitation with reservations, pending confirmation that a sufficiently large share of the parties would grant their support.
Once this support is obtained, Draghi (Goldman Sachs banker from 2002 to 2005) will face a vote of confidence in both the House and the Senate, perhaps as early as next week. Although the boundaries of the new coalition are not yet clear, analysts expect a larger majority in support of Draghi that includes most of the previous ruling coalition (M5S, Democratic Party and Italia Viva) and Forza Italia, led by Silvio Berlusconi .
The American investment bank expects the new government “to improve the fiscal response to the crisis caused by Covid, to update the plan for the Recovery Fund with some structural reforms (those expected by the EU) and, finally, to produce a strategy more effective on the vaccination campaign in Italy “. Two main political risks weigh on the new government beyond the vote of confidence: firstly, the different attitudes within the 5 Star movement towards Europe and towards Draghi, secondly, “the addition of Forza Italia the coalition will increase the degree of fragmentation in the political platform “.
However, according to Goldman Sachs, early elections remain “a remote probability, especially after President Mattarella made it clear that their timing, at least four months for a new government, would be extremely challenging for the economy and risky for containing the pandemic. “. As a result, analysts expect Draghi to form a new government with broad support, at least initially. In any case, the risk remains that the banker will not be able to create a colalition. However, Draghi being considered the Lender of Last Resort in terms of “institutional and political capital and, if it fails”, the US bank expects “an increase in sovereign risk”. Investors will therefore sell Italy if Draghi fails.
And that would be a shame, because the banker “comes at a unique moment. The high-profile, technocratic government he is likely to lead will not have the difficult task of implementing fiscal consolidation, rather the opposite. His government will have to make sure that the available fiscal support is available. provided through the Recovery Fund is used quickly and effectively, “writes Goldman Sachs. This places Draghi’s task “on a firmer foundation than any technocratic government before him in the recent past.”
On the political front, analysts expect the new government to impact on at least three relevant dimensions. First, it should improve “the timeliness of the fiscal response to the crisis triggered by Covid through closer monitoring of its implementation. Second, it will likely improve the structure and management of the Recovery Fund … and, above all, carry out structural reforms. of the Italian administration necessary to facilitate the allocation and implementation of European funds “. In fact, the funds will not be sent to Italy if the government does not first implement the reforms. Furthermore, Draghi is also seen as a facilitator in the vaccination strategy “thanks to the bonds that the banker has with the European institutions”. (All rights reserved)
