Can Mario Draghi save Italy's economy?

Italy's prime minister Mario Draghi hopes that his €222bn public spending plan, which includes high-speed internet, high-speed rail, and improving the energy efficiency of public buildings, will give the Italian economy a boost.

Mario Draghi
Mario Draghi is not a miracle worker
(Image credit: © Luigi Mistrulli/SIPA/Shutterstock)

Mario Draghi has a “grand plan” to transform Italy, says Hannah Roberts on Politico EU. The Italian prime minister wants to spend €222bn on a raft of projects, including rolling out high-speed internet, extending high-speed rail, “earthquake-proofing millions of homes” and improving the energy efficiency of public buildings. €191.5bn of the money will come from Next Generation EU, the EU’s landmark pandemic recovery fund. Another €30.6bn will come from extra Italian government borrowing.

The spending looks “well-targeted”, says Neil Unmack on Breakingviews. Italy badly needs to digitalise its public services, while €30bn will go towards addressing the country’s weaknesses in education and research. Italy has plenty of “catching up to do”: annual GDP growth has averaged just 0.3% over the past decade. Public debt is heading towards an eye-watering 160% of GDP. Reforming Italian governments often have “a short shelf life”.

A key priority for Draghi is reforming Italy’s sluggish courts, say Miles Johnson and Sam Fleming in the Financial Times. The World Bank reports that it takes more than 1,100 days to enforce a commercial contract in Italy. That’s almost double the average in other big EU economies and a deterrent to foreign investment.

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Italy needs a Thatcher

The rise of the highly regarded former European Central Bank chief to the Italian premiership has cheered markets. The country’s FTSE MIB stock benchmark has gained 9.5% so far this year. Trading on a cyclically adjusted price/earnings (p/e) ratio of 21.9, the country’s shares are no longer the clear bargain they once were, although they remain slightly cheaper than the Japanese or French markets.

The eurozone’s third-largest economy has been a source of constant anguish for European policymakers, says Charlemagne in The Economist. The hope is that even if Draghi’s term in office proves short, he will leave behind a “new fiscal blueprint” that future Italian governments will be unable to discard. But the man is “not a miracle-worker”. A central banker can “pull a lever and money comes out”; in Rome, politicians often discover that the levers they pull are “connected to nothing at all”.

Fiscal hawks might question whether Italy needs more spending, but its high public debt is a “symptom” of deeper problems, says Roger Bootle in The Daily Telegraph. The country badly needs fundamental reform of everything from its byzantine tax code to its mediocre education system.

Stark disparities between the wealthy north and poorer south are another challenge. Distant though it now seems, before 1990 Italy was a “raging economic success story”; it was Britain that was the sick man of Europe. Transformation is possible, but Draghi will require the same “fortitude” as the iron lady to get there.