Crisis in Italy After the President Rejects Prime Minister Draghi’s Resignation

Squabble Over Ukraine 

The 5-Star Movement pulled out of Draghi’s coalition over economic and foreign policy.  In response Mario Draghi Submits Resignation to the president Sergio Mattarella who rejected the resignation. 

Mr. Draghi said he would resign after a key party in his coalition pulled its support for his government following squabbles among the groups on whether to send arms to Ukraine and how much financial support to give to Italian families reeling from high inflation.

Mr. Draghi has been one of the strongest voices among European leaders in favor of economic sanctions against Moscow and arms shipments to Ukraine. Mr. Draghi also argued in favor of Ukraine’s candidacy to join the European Union, a position that previously skeptical France and Germany have now also signed up to.

5 Star leader Giuseppe Conte has challenged the government’s policy of sending arms to Ukraine, arguing that it impedes a diplomatic solution to the war. Mr. Conte’s stance split the party recently, with a large faction around Foreign Minister Luigi Di Maio leaving and declaring its loyalty to Mr. Draghi’s pro-Western policy on the war.

The rump of the 5 Star Movement has called for stronger government aid for Italian households hit by surging energy prices, a stance designed to appeal to lower-income voters, especially in Italy’s poorer south, who used to vote for the party.

President Mattarella Rejects Prime Minister Draghi’s Resignation

CNN reports Italy’s President Mattarella Rejects Prime Minister Draghi’s Resignation

Italian Prime Minister Mario Draghi said Thursday that he would resign, after the 5-Star movement — the largest party in the country’s coalition government — withdrew its support in a parliamentary confidence vote.

Draghi’s measures — a package designed to tackle Italy’s cost-of-living crisis — passed by 172 to 39. However, the 5-Star boycott leaves the government at real risk of collapse and could lead to an early election.

After winning the vote but losing 5-Star’s support, Draghi said in a statement: “I want to announce that this evening I will present my resignation to the President of the Republic.”

“Today’s votes in Parliament are very significant from a political point of view. The majority of national unity that has supported this government since its creation is no longer there,” he added. He had previously said that he would not lead a government that did not include 5-Star.

Trash Incinerator Fueled 5-Star

The Washington Post has an amusing angle on the Italian Government Collapse involving a trash incinerator.

Italy was pushed to the brink not by a global or national crisis but by a debate over a proposed trash incinerator in Rome. “Absurd,” said Roberto D’Alimonte, a political science professor at Luiss Guido Carli University.

Senators from one of the biggest parties in Draghi’s coalition — the Five Star Movement — boycotted a confidence motion ostensibly because it was linked to a bill that contained a provision for the incinerator, a project the party opposes on environmental grounds. Other politicians have called it a solution to an urgent — and putrid — problem in a city that has become synonymous with haphazard trash collection, overflowing dumpsters and seagulls that swoop in to feast on the rubbish.

As part of various Italian coalitions over the past four years, it has zigzagged on issues including immigration and the European Union. The party recently splintered when Minister of Foreign Affairs Luigi di Maio picked off about a third of the Five Stars’ parliamentarians, who were divided on weapons shipments to Ukraine. The remaining Five Star members are led by Giuseppe Conte, a former prime minister and law professor, who earlier this month had handed Draghi a nine-point list of the party’s proposals.

I suggest trash is a symptom of the problem not the problem. Actually, Italy has numerous problems. 

What’s Next?

Italy’s president is largely a figurehead except in matters involving formation of a government. 

Mattarella asked Draghi to appear before Parliament to make communications and attempt to form a new majority. 

Mario Draghi is pro-Europe and pro-Ukraine. But new elections would favor the Eurosceptic far right, which the EU would abhor. 

The president will make every attempt to keep the Right out of heading up a government. 

The backroom negotiations will begin. But Draghi will not last long. He was appointed, not elected, and only stayed on at the request of the president. 

What’s Italy’s Problem?

• Italy’s government is continually dysfunctional. 
• Only one government lasted its full five-year term since 1945.
• The country never belonged in the Eurozone and could potentially lead to its collapse.
• Italy is heavily in debt with an aging population.
• Per capita GDP is lower than 20 years ago.
• Organized crime and corruption
• Dysfunctional justice system
• North-South divide of haves vs have-nots
• Italy’s banking system is in serious need of reform but there is no political will to do so. 

In many ways its amazing that Draghi has lasted this long. 

Strength in the US Dollar is Easy to Explain

If you are looking for another reason for the strong dollar, just take a look at Italy. The entire Eurozone is a mess in numerous ways. 

For discussion, please see my June 30 post Strength in the US Dollar is Easy to Explain

The Euro is 57.6% of the US dollar index, the Japanese Yen 13.6%, and the British Pound 11.9%.

That pretty much tells you all you need to know. Here are some related details.

• The ECB and Bank of Japan still have negative interest rates.
• The Fed is on a huge rate hike and QT rampage
• Japan has pledged to defend its 10-year rate to under 0.25 percent.
• The ECB will not start QT until some time in the third quarter with no hint of early or later in the quarter.

The US dollar index was 104.95 on June 30. Today it’s 108.47. Any foreign companies or countries with significant debt in US dollars are in trouble. 

Also see End of the 40-Year Bull in Debt and a “Global Depression” Threat

“I don’t do hyperbole at all, but if this really is the end, and we really are going to see real rates rise appreciably, then you are talking about a global depression,” said Danielle DiMartino Booth.

This post originated at MishTalk.Com.

Thanks for Tuning In!

Please Subscribe to MishTalk Email Alerts.

Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time.

If you have subscribed and do not get email alerts, please check your spam folder.

Mish