“Super” Mario Draghi Tapped To Lead Apolitical “Unity” Government, Save Italian Economy

With the G-20 eager to ensure a stable hand is at the steering wheel of Italy’s chaotic economy during a critical year for Italian economic development (Italy is hosting the rotating G-20 presidency this year; Janet Yellen had a call with Italy’s economics minister just a couple of days ago) Italian President Sergio Mattarella has just confirmed that former ECB chief Mario Draghi – who earned the nickname “Super Mario” for his infamous “whatever it takes” to save the euro speech, given nearly nine years ago – will be tapped to form a new Italian government.

The 10y BTP-Bund spread tightened ~11bps to 103bps overnight, while showing only a muted reaction to the confirmation of the news.

The news, which has been carefully telegraphed to the press, with the news all but confirmed a day ago, was hardly a surprise: because by the time the announcement was made, a global chorus of market participants and technocrats had shouted that Draghi was the only one with enough credibility to lead Italy back to a place of economic prosperity. Earlier in the European session, the spread between the 10-Year BTP, and the 10-Year German bund (often referred to as “lo spread”) compressed, a sign of growing hopes for Italy’s economic future (and falling credit risk for those who lend to the Italian government). In the European equity space, the Italian FTSE MIB is the outperformer with gains of around 3.0%.

Draghi is reportedly being given wide latitude to form a government by Mattarella, who, as president, holds an important custodial role in the Italian government (and has featured in proceedings almost too frequently in recent years), but has little actual power. Mattarella said last night that without a new government at the helm, Italy’s government would be essentially frozen pending new elections, leaving the Italian people vulnerable to the financial and political vicissitudes of both COVID and tumbling confidence in the Italian people’s ability to government themselves. With that, he said he had no alternative but to appoint Draghi, who will run Italy until the next round of elections, which presumably will be held later this year.

“I have the duty to emphasise that the long period of electoral campaign, and the resulting reduction of government activity, would coincide with a crucial moment for the fate of Italy,” Mattarella said.

At UBS, a team of analysts and economist led by Giovanni Montalti said tht “a Draghi-led government with a clear mandate and a wider majority is likely to be seen by investors and European partners as the most credible option to face Italy’s policy challenges,” said UBS. “A technocratic government represents the upside case scenario,” they added.

On Twitter, the memes are already beginning to flow.

Draghi accepts mandate to form new Italian Govt. pic.twitter.com/XtGKWmHz7Y

— Michael Brown (@MrMBrown) February 3, 2021

Italy is grappling with almost 90K COVID deaths and, as Bloomberg opinion writer

Bloomberg opinion writer Ferdinando Giugliano, although there are “reasons to be skeptical” about a technocrat who was once the most powerful financial official in Europe being appointed to lead the Continent’s third-biggest economy, in the end “if there’s one man who could extract Italy from its mess, it is Draghi.”

“The former European Central Bank president has an unrivalled record in crisis management, having steered Italy and the euro zone through some of the worst turmoil of the past three decades.” In the early 1990s, as director general of Italy’s treasury, he navigated Europe’s Exchange Rate Mechanism crisis, rescued Rome from a likely default and spearheaded a vast privatization program – all of this while Italy’s “Clean Hands” bribery scandal swept away a generation of politicians.”

It’s only the first week of February, and already shares of Gamestop have soared well into triple-digit territory, and former central bankers are being tapped to form expressly apolitical governments of national unity to try and save an entire European economy from financial ruin. At this point, investors might want to brace for the prospect that 2021 might be even stranger than 2020, if that’s possible