Draghi departure is a major loss for stability in Italy and Europe


NOS News

Mario Draghi survived the vote of confidence in the Senate he asked for. But that was not enough to prevent the fall of his government. Draghi again submitted his resignation to President Mattarella, who was accepted this morning. An Italian political crisis, therefore, which has consequences for the entire eurozone.

To start with Italy: 74-year-old Mario Draghi is also known as the country’s savior. He brought stability and implemented a recovery plan. “Draghi is there to bring the money into Italy from all the funds to Europe,” says Arnoud Boot, professor of financial markets at the University of Amsterdam. By this he means, among other things, the European corona recovery fund, of which Italy can look forward to 205 billion euros.

“And he gives confidence with his reputation and his attitude, which makes other national governing parties also want to help Italy,” Boot added.

This is also reflected in the yield on Italian government bonds. After Draghi’s departure, interest rates that the country will have to pay on government bonds will rise sharply. The Italian interest rate on a 10-year bond is now almost 3.6 percent. Yesterday, interest rates fluctuated around 3.2 per cent.

No help

Italy is the third largest economy in the euro area and is therefore important for the ins and outs of the whole zone. “Italy is important for the European Central Bank’s policy and whether it achieves its goals. With Draghi at the helm, reforms can be implemented in the interests of Italy, but also the eurozone and thus the Netherlands,” said economist Maartje Wijffelaars. , as Rabobank follows developments in, among others, Italy.

Italy’s use of the euro is not in conflict with Draghi’s departure, she believes. But his successor is not necessarily good for financial stability in the eurozone. For it is mainly the populist parties that score high in the polls: “One thing is for sure: no one is coming to bring the peace that has been there recently, and you will see that reflected in the financial markets.”

“If rulers arrive in Italy that do not make an effort to belong to Europe, uncertainty increases. The European Central Bank (ECB) has to keep Italy out of the wind, but at such a time there is no support for it, and that means ultimately a euro crisis, “says Arnoud Boot.

Investor uncertainty

The question of whether we are on the threshold of a euro crisis arises, among other things, because Italy has a sky-high government debt. It is one and a half times higher than the gross domestic product. As a result of rising interest rates, it is becoming increasingly difficult to finance this debt. However, the ECB has recently decided to accommodate high-debt countries, such as Italy.

It helps that Draghi is the former CEO of the ECB. Investors trust him that he and his corporate cabinet handle debt wisely in times of rising interest rates. But without him, investor uncertainty will increase.

Still, Wijffelaars does not immediately expect a euro crisis, although Italy will lose more due to rising interest rates on its debt or will have to choose to cut more spending. “It is certainly not pleasant, but that does not mean that the Italian government debt can no longer be held overnight, it will take some years of the necessary political intervention.”

The failing euro has major consequences. The Netherlands and Germany will survive, but it will remain with us for a long time.

Arnoud Boot, Professor of Financial Markets

And the euro does not seem to be in danger yet, if you look at the financial markets: they are still reacting calmly. “The markets are a little used to it. If we look at the last ten years: it is increasingly assumed that when there is a push, the government will take action. And because of the various crises in recent times, the market partners have been paralyzed. Would expect more exercise, “says Professor Boot.

But investors may be worried about the uncertainty in Italian politics ahead of new elections. And then things can go wrong with the markets. Boot: “The euro, which is falling apart, has major consequences. The Netherlands and Germany will survive, but it will remain with us for a long time.”

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