Draghi’s Political Skills Emerge as One-Time Critics Become Fans

(Bloomberg) -- In under one week, Mario Draghi has managed to bring together warring parties from across the political spectrum in Italy, boosting financial markets and projecting a new image for the country. In many ways, that’s more than his predecessor managed in over two years.

How has he pulled it off? “He’s Draghi,” said one official involved in the talks, who asked not to be named. The former head of the European Central Bank’s prestige is so strong, it appears, that suddenly everyone wants a piece.

Draghi’s track record as a policy maker and skills as a mediator are helping to forge a rare consensus in Italy, with potential opponents reasoning that it’s now politically risky not to back him. Thanks to the European Union’s recovery fund, Draghi also has 209 billion euros ($250 billion) to turn around the country’s ailing economy -- and he doesn’t want to run in elections.

That’s an appealing recipe for markets too. Italian stocks and bonds have rallied since Draghi accepted a mandate to form a new government. Italy’s 10-year yield spread versus Germany, a key measure of sovereign risk, fell below 100 basis points last week to the narrowest level in five years, and the nation’s benchmark stock index rose 1.9% to a one-year high on Monday, led by gains in banks, which are sensitive to the spread.

Draghi, 73, is expected to conclude a second round of talks with parties Tuesday and he could reveal his top ministers this week.

The stakes couldn’t be higher for Italy. The coronavirus pandemic caused the economy to shrink around 9% last year and left more than 90,000 dead, while government debt is heading toward 160% of output. The ECB’s bond-buying program has kept a lid on borrowing costs so far but there are questions about how long that can be sustained.

Draghi on Monday reaffirmed the possibility of a common euro-area budget. That would help protect the Italian economy from the risk posed by its public finances, but it would be a tough sell for some other euro members, who worry about picking up the tab for Italy’s problems.

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In Rome, most parties seem to be falling in line. Many of the political leaders that Draghi has met with have gone out of their way to present an accommodating face and soft-pedal the issues which saw them clash with each other during Giuseppe Conte’s two tumultuous administrations.

Italy’s Used to Bringing Central Bankers In When Politics Fails

For many -- some officials observed -- it’s reassuring that Draghi seems to harbor no long-term political ambitions of his own. For others it’s enough that he doesn’t seem anything like Mario Monti, a technocrat who once led the country, and who many voters associate with the horrors of austerity.

The center-left Democratic Party has pledged to support the ex-ECB chief, with one party official commenting approvingly that Draghi definitely isn’t another Monti.

Former Premier Matteo Renzi’s Italy Alive party also considers itself an early backer. Even though he was instrumental in Conte’s demise, Renzi is not close to the ex-ECB leader and has only had occasional contacts with him, according to a person familiar with Draghi’s thinking.

The Five Star Movement, the biggest force in parliament, is divided, with some members clinging to their anti-establishment roots and others wanting to back Draghi. Five Star lawmakers fear early elections because the party’s support has tanked since the 2018 vote.

Arguably the most important of the ex-ECB head’s recent meetings was with Matteo Salvini of the rightist League, the party tipped to get the most votes in an election. At his first-ever encounter with Draghi on Saturday, the rightist firebrand played down his hard-line stance on immigration, according to a person who was present.

Salvini also made atypically pro-European noises, after years of slamming Brussels. This could be a chance, said the party official, for the League to clean up its image abroad.

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When the two men met, Salvini turned on the charm, needling Draghi about his favorite soccer team and ending the encounter with a political joke. You’ve sat through all these talks, he told Draghi, you’re not thinking of giving up the mandate now, are you?

Draghi just smiled. And Salvini went out and publicly announced his support for the ex-ECB chief.

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