The association of Italian private pension funds – Associazione degli enti previdenziali privati (ADEPP) – has called on the country’s Prime Minister, Mario Draghi, to remain in his post to guarantee political stability ahead of a confidence vote that could lead to snap elections.
In a statement, ADEPP has urged Draghi to continue his work “in favour of the supreme national interest,” based on the “principles and values” that have defined the actions of the government so far.
“Our country and the whole of Europe need your firm and competent leadership to deal with the difficult political, economic and social situation we are experiencing,” the association added.
Political instability and the possibility of early elections would lead to postponed reforms, it stated.
Draghi, former European Central Bank (ECB) president, offered his resignation last week after the Five Start Movement (M5S), one of the parties supporting the government, abstained from a confidence vote on the Decreto Aiuti (aid decree) – a series of measures to support families and companies during this period of crisis.
The government eventually obtained parliament’s green light to pass the decree into law, but M5S’s decision to abstain caused a political earthquake within the alliance of parties supporting Draghi’s government, who decided to offer his resignation but was then rejected by President Sergio Mattarella.
Parliament will reassemble again tomorrow, 20 July, for another confidence vote on Draghi’s government.
Tomorrow’s vote comes just one day before the ECB’s governing council unveils the anti-fragmentation tool (Transmission Protection Mechanism), designed to avoid the risk of sovereign debt crisis.
ADEPP’s plea is added to the appeal of 1,300 mayors across Italy, and of chief executive officers and other industry representatives, who are asking Draghi to remain as prime minister to safeguard political stability in times of high inflation.
An uncertain scenario
Credit Suisse has drafted three scenarios following tomorrow’s confidence vote, with Draghi opting to remain prime minister with the same coalition, or if one of the political parties leaves the coalition, early elections, and a new coalition built under a new prime minister.
Analysts at the bank said in a paper that the likelihood of snap elections now appears higher than it was back in January, when the coalition parties threatened it.
If Draghi resigns, the coalition parties will be unlikely to agree on a new prime minister and would rather call for early elections, the paper added.
According to the analysts, the prospect of early elections may derail the reforms under the EU Commission’s Recovery and Resilience Facility that need to be implemented over the coming months.
This means that Italy might not be able to access EU funds and grants, or delay the use of the funds, that would likely lead to further fiscal instability, widening the spread between Italian government bonds and German bonds.
The spread between Italian government bonds and German bonds was 207 points, as of 19 July, according to Italian Stock Exchange Borsa Italiana, well below the peak of 237 points reached in June when the ECB decided to end the asset purchase programme (APP).
Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, said that Italian government bonds are “likely to remain under pressure in the near-term until we get clarity on the political front […] Mario Draghi will be out of the equation, either very soon or by early next year.”
He added that the likely scenario after tomorrow’s vote remains a government buying time until next year’s election.