Three parties in Draghi’s government turned against him; The prime minister will likely resign Thursday morning
Prime Minister Mario Draghi tried to strong-arm his fractious
coalition allies into line. But his plan backfired and Italy’s
government is now on the brink of collapse, leaving little alternative
to snap elections in the fall and months of political chaos.
Three
of his coalition partners withdrew their support Wednesday night after
Draghi forced a confidence vote by threatening to quit. And while Draghi
didn’t immediately step down after the failed vote, the move
effectively ended the unity government he’s been running since February
2021.
The former European Central Bank chief is
expected to resign Thursday. If President Sergio Mattarella accepts his
resignation, emergency elections could be called for early October, the
first time the country would go to the polls in the fall.
“The
only way, if we want to remain together, is to rebuild this pact from
scratch, with courage, altruism, credibility,” Draghi told lawmakers
ahead of the confidence vote. In the end, three of Draghi’s government
allies, the populist Five Star Movement, the nationalist League and the
center-right Forza Italia abandoned him.
Investor Jitters
The
situation will be closely watched in Frankfurt, where the ECB is set to
unveil a new crisis-fighting tool designed to protect highly indebted
countries like Italy from speculation.
What Bloomberg Economics Says
The
uncertainty is likely to make bondholders increasingly nervous, raising
the pressure on the European Central Bank to announce a credible
anti-fragmentation tool on Thursday.
-- David Powell, senior euro-area economist. Click here for full note
Italian
bonds are set to be buffeted on Thursday after BTP futures slid into
Wednesday’s close. Futures contracts on the FTSE MIB Index fell 4% after
the confidence vote while bond futures touched a three-week low.
Italian banks, which are sensitive to the spread between BTPs and bunds, will be in particular focus. The euro slipped against the dollar.
Bloomberg
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