Mario Draghi Ushers in The Counter Revolution But He Can't Save

Mario Draghi ushers in the counter-revolution but he can’t save Italy https://www.telegraph.co.uk/business/2021/02/03/draghi-ushers...
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Mario Draghi ushers in the counter-revolution but he can’t save Italy

He was synonymous with defending the euro but he may yet be the man that oversees his
country’s exit
AMBROSE EVANS-PRITCHARD
3 February 2021 • 8:02pm
382
I taly has gone through the gears, from democratic revolt against the euro and the
country’s pro-EU elites, all the way to the other extreme of a technocrat government
under the ultimate Mr Euro, without any election along the way.
The stitch-up has been breath-taking, even for those who thought they had seen it all in
Italy. The appointment of Mario Draghi to navigate the dangerous economic waters of the
next two years is astute - in one sense - but those in EU circles and the bond markets
celebrating this insider riconquista should be careful what they wish for.
The last usable card has been played in Italy’s misadventure with monetary union, a
regime that has led to two lost decades of perma-slump, overseen 50pc youth
unemployment rates across the Mezzogiorno, and culminated in a debt-deflation trap. It
had better work.
Three years ago, Italian voters rebelled against this regime. Insurgent parties of Left and
Right swept into power, vowing to defy EU fiscal rules and to reverse reforms imposed
upon them (indirectly) by Berlin. A ‘mini-Bot’ parallel currency was written into the
1 of 9 2/5/21, 9:13 AM
Five Star Movement - in thrall to the half-mad “Guarantor”, Beppe Grillo - were joined
with Lega nationalists under a latter day Sforza, the Milanese strongman Matteo Salvini.
The clueless Five Star were tamed and co-opted. Or seen from Brussels, they ‘matured’,
like Syriza’s deflated rebels in Greece. Step by step, Italy’s vested interests reeled back the
core ministries.
The counter-revolution is now complete. The country is being placed fully under a
disguised Troika to ensure that EU payments from the Recovery Fund are not misused for
patronage, and therefore to ensure that northern paymasters allow the money to flow.
This episode is more ambiguous than the institutional coup against Silvio Berlusconi,
defenestrated in 2011 after he threatened to take Italy out of the euro. On that occasion a
former EU commissioner was installed in charge. Mario Monti was a well-meaning
statesman but the experiment failed. It led to the Lega-Five Star backlash.
Mario Draghi is a shrewd operator and canny politician CREDIT: GETTY IMAGES
2 of 9 2/5/21, 9:13 AM
parliament, even without Mr Berlusconi’s Forza Italia. The Lega is not as fierce as it once
was, but nor has it been ideologically co-opted. It still has a proto-lira in its back pocket.
Mr Draghi is a shrewd operator. He rescued monetary union after it was almost destroyed
by the serial errors of Jean- Claude Trichet: a panic rate rise in the early stages of the
global financial crisis in July 2008; and premature tightening measures afterwards that set
off the sovereign debt crisis.
The MIT-trained Mr Draghi moves in economic circles far above such monetary
provincialism. He recognised the dangers of a structural slump. His skill was to herd the
cats of the ECB’s governing council, preventing open dissent as he pushed the envelope: a
blitz of ultra-cheap loans to banks (LTROs), rate cuts below zero, QE on an epic scale, and a
bond market rescue.
But he is not a magician. The euro was not saved because he pledged “whatever it takes”
in a London speech about bumblebees. It was saved because Mrs Merkel belatedly
recognised that matters were getting out of hand, and that it was politically less dangerous
to let the ECB buy bonds than to ask the Bundestag for money. Once this decision was
taken, the debt crisis faded away. Four years of misery had been entirely avoidable.
3 of 9 2/5/21, 9:13 AM
worse than ever.
What he did succeed in doing was to draw Germany deeper into the Faustian Pact. The
side-effect of QE has been a vast imbalance in the ECB’s Target2 payments system.
Southern central banks have built up liabilities of €1 trillion to the ECB system, and
implicitly to the Bundesbank. You could argue Germany is now in so deep, it can never
pull the plug.
Assuming that Mr Draghi is able to form a government, he faces an invidious task. The
pandemic has lifted Italy’s debt ratio by 33 points to 160pc of GDP since March, and the
virus is not defeated yet. Europe’s vaccine travails have pushed out recovery by a further
three months. Italy may lose the first half of this year’s tourist season on top of last year’s.
The longer this goes on, the greater the subsequent cascade of corporate insolvencies.
The €750bn Recovery Fund has been oversold by Italy’s leaders. “The idea that billions
will soon be flowing is propaganda. The recovery fund is not going to change anything,”
said Claudio Borghi, Lega chairman of the budget committee.
The net fiscal transfer to Italy amounts to 0.7pc of GDP annually stretched over three
years. It is a modest nudge of the macro-economic needle.
“We do not see it as a historical agreement heralding a re-foundation of the EU or the euro
area,” said Citigroup’s Arnaud Marès, Mr Draghi’s former right-hand man at the ECB.
“Rather than a ‘game changer’, we see it as another example of the same ‘game’ that has
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perfectly suited to the job.
Related Topics
Global economy, Euro, Mario Draghi, Eurozone, Italy
382
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Mario Draghi ushers in the counter-revolution but he can’t save Italy https://www.telegraph.co.uk/business/2021/02/03/draghi-ushers...

NEWS WEBSITE OF THE YEAR

See all Business

Mario Draghi ushers in the counter-revolution but he can’t save Italy

3 February 2021 • 8:02pm

worse than ever.

perfectly suited to the job.

Cadbury brings most Dairy Milk production back to Bournville

5 Feb 2021, 7:41am

French Connection ﬁelds takeover approaches

Big state interventionism is a dangerous game

Takeover of 'pioneering' Asda is straight out of the private

Rewards Reader Prints

Branded Content Syndication and Commissioning

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