“One could argue that a political crisis just makes the ECB’s balancing act more complicated, as we would not be surprised if hawks take this as evidence that any such tool is fraught with risks, like the ECB’s political hostage,” he says. This would leave Italy more exposed to rising borrowing costs at a critical time. Draghi only took the reins in February last year, aiming to deliver stability and continue key economic reforms after the collapse of the Five Star-led coalition. Polls show more right-wing parties have gained support since the 2018 election, raising the prospect of a more Eurosceptic coalition, which Allen-Reynolds says could jeopardize further EU funding the Italian state is counting on to receive. “Italy has already received 25% of the funding allocated to it under Next Generation EU, but to receive the rest the government will need to continue to implement reforms,” says Allen-Reynolds. “They have an inefficient public sector, IT adoption is low, the business environment is extremely difficult and the legal system is very, very weak. The reforms aim to improve all of these, so in that sense they make sense and they have made progress in implementing these reforms.” As well as providing extra cash from Brussels, the reforms should, in the long run, help boost economic growth in a country plagued by inefficiency, debt and an aging population. But without Draghi, who has achieved “a highly unusual – by Italian standards – degree of unity … it will be much more difficult in the future”.
