Italian Prime Minister Mario Draghi resigns after coalition collapses

Italian Prime Minister Mario Draghi submitted his resignation to President Sergio Mattarella on Thursday after his unity government collapsed, plunging the country into political turmoil and hitting financial markets.

Mr Mattarella’s office said in a statement that the head of state “took note” of the resignation and asked Mr Draghi to remain acting acting. The statement did not say what Mr. Mattarella will do next.

Earlier this week, political sources said he would likely dissolve parliament and call early elections in October. Mr. Mattarella plans to meet with the speakers of both houses of parliament on Thursday afternoon.

How did it happen?

The Italian coalition fell apart on Wednesday when three of Mr Draghi’s main partners ignored a vote of confidence he called to try to end differences and renew his fractious alliance.

The political crisis has undone months of stability in Italy, during which Mr Draghi, a respected former central banker, helped shape Europe’s tough response to Russia’s invasion of Ukraine and bolstered the country’s position in financial markets.

Impact on markets

Italian bonds and stocks fell sharply on Thursday as markets braced for the first rate hike by the European Central Bank since 2011.

In early trading, benchmark 10-year Italian bond yields soared more than 20 basis points to their highest level in more than three weeks, with Italian equities opening 1.8% lower.

“This is a big blow to Italy’s ability to implement policies and reforms in the near term,” said Lorenzo Codogno, head of LC Macro Advisors and a former senior Italian treasury official.

“There will be delays and disruptions to early elections, and most likely there will be no budget by the end of the year.”

The coalition is falling apart

Mr Draghi had already resigned last week after one of his partners, the populist Five Star Movement, did not support him in a vote of confidence in measures to combat the high cost of living.

Mr Mattarella rejected the resignation and told him to go to Parliament to see if he could keep the broad coalition alive until the scheduled closing of the legislature in early 2023.

In his speech before the Senate, Draghi called for unity and laid out a range of problems facing Italy, from the war in Ukraine to social inequality and rising prices.
But 5-Star once again decided not to support him, stating that he did not solve their main problems.
In addition, the right-wing parties Forza Italia and Liga decided to abstain from voting, saying they want to assure Mr Draghi is ready to create a new administration without five stars and with new political priorities.

Polls show that the conservative bloc, which includes the far-right Brothers of Italy party, is likely to win the vote.