Mario Draghi on track to becoming Macron 2.0: ‘Last thing Italy needs!’

ECB conference: Mario Draghi discusses policy stance

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The voice of Italian Prime Minister Mario Draghi is not only being heard loud and clear in Paris and Berlin, but it is also setting the agenda as the EU tried to emerge from the coronavirus pandemic. Jana Puglierin, senior policy fellow at the European Council on Foreign Relations told the Financial Times: “Italy was always seen as the EU’s juvenile delinquent, and now it’s the model European.” On Monday, Mr Draghi, the former President of the European Central Bank (ECB), will present Italy’s plans to spend €190billion (£165bn) of EU loans and grants alongside a set of structural reforms seen as critical to the entire credibility of Europe’s post-Covid recovery effort.

Mr Draghi has also announced Italy will run its largest budget deficit since the early Nineties, and has decided to increase borrowing ahead of a call from the IMF for all EU countries to do the same.

Financial markets, often worried about the size of Italy’s public debt, for now remain unconcerned — a sign of confidence in the new Prime Minister.

Moreover, previously thorny relations between Rome and Paris have suddenly blossomed, according to diplomats from both countries.

Mr Draghi holds regular calls with Mr Macron, including one last week, to discuss the pandemic and other strategic issues.

However, Thomas Fazi, journalist and author, has recently argued that Mr Draghi is actually the “last thing Italy needs” and that he is on track to becoming “Macron 2.0.”

Mr Fazi believes that the notion that Italy’s problems fundamentally lay in its lack of liberalising reforms and that by embarking on said reforms the country can finally put itself on a path of growth once again is an old trope.

Unfortunately, he argued, it is completely unsupported by the data.

He wrote: “Indeed, since the early Nineties, as this recent study documents, Italy has introduced a huge number of liberalising reforms ranging from corporate governance reforms aimed at making corporate control more contestable, to privatisation of the main state-owned banks and enterprises, as well as reforms enhancing labour market flexibility and increasing product-market competition.

“Indeed, the data ‘shows that Italy introduced liberalizing reforms more intensely than most other countries, especially from 1992 on, more than Germany and, especially, France’.

“Just over the past decade, Italy’s ‘ease of doing business’ ranking, according to the World Bank, has jumped from the 78th to the 58th position, a 20-point improvement, with no noticeable impact on growth.

“Indeed, if anything, the introduction of these reforms has coincided with the beginning of the stagnation of the Italy’s economy.”

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Mr Fazi claimed this is not a coincidence – it has now been empirically documented that Italy’s decades-long crisis should be regarded as a crisis of “the post-Maastricht order of Italian capitalism, based upon privatisation, fiscal austerity, wage compression and the radical deregulation of labour markets, which represent the essence of the EMU macroeconomic rulebook”.

He added: “Interestingly, as I explain in this article, one of the main sponsors of this ‘reform regime’, as far back as the early Nineties, was none other than Draghi himself.

“So the last thing Italy needs is more of the growth-killing reforms that have gotten Italy into this mess in the first place.”

He concluded in his report for Brave New Europe: “All in all, Draghi is on track to becoming a Macron 2.0: at the time of his election, the French leader was eulogised by the mainstream media as a great modernising, pro-EU reformer as well; today he has one of the lowest approval ratings in Europe.

“You can gloss over reality as much as you like, but sooner or later it catches up with you.”

It is expected Mr Draghi could further push for a fiscal union – particularly given his time at the ECB.

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In 2012, at the height of the eurozone crisis, Mr Draghi had already told eurozone leaders they should have accepted more transfer of powers.

During a meeting of the eurozone’s central bank governing council, Mr Draghi explained that governments had to stick to tighter budgets, while reforming labour markets, increasing competition, re-balancing employment towards young people.

He said: “I can understand the anger of young people, of poor and jobless young people.

“I can understand it very well.

“The answer we can give as policy makers is that the policies suggested or implemented are the policies we are convinced to be the right ones.”

Also part of his vision of a “growth compact,” Mr Draghi backed calls for a boost in the resources of the European Investment Bank and said EU funds needed to be “redirected” to low-income areas .

He added: “But the thirdly and most importantly is that we collectively have to specify a path for the euro. How do we see ourselves in 10 years from now …We want to have a fiscal union?

“We have to accept the delegation of fiscal sovereignty from national to some form of central [government].”

Despite Mr Draghi’s comments, eurozone leaders never got round to establishing a fully-fledged fiscal union.

However, in October, German Finance Minister Olaf Scholz said Brussels was taking a step towards a fiscal union with its plans to recover from the coronavirus pandemic – which involve the European Commission borrowing in financial markets.

Mr Scholz told an interparliamentary conference on stability, economic coordination and governance in Brussels: “We are moving towards fiscal union, a major step forward in the financial capacity and sovereignty of the EU.”

To support the bloc’s economy, the EU has announced a €750billion (£678billion) recovery fund.

He added: “Markets have confidence in European policies and in the development of European economies.

“We should carry on with this course.”

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