The Rimini Platform

The paradox of the ECB long-term refinancing operationsEuropean Central Bank's president Mario Draghi

Gilles Moec (AXA Group Chief Economist) | We look into the likely agenda and the chances of success of a Draghi premiership in Italy, in particular drawing from a wide-ranging speech he gave in Rimini in August of last year.

In Rimini in August 2020, Mario Draghi gave a speech which in retrospect could well define his action if he manages to summon a parliamentary majority and becomes Italy’s head of government. The main point, from a macroeconomic point of view, was on a distinction between “good” and “bad” debt. Good debt funds productive, future-oriented expenditure which will enhance potential growth and ultimately strengthen the sustainability of public finances. This is very close to Larry Summers re-jigged brand of Keynesianism with a strong focus on fiscal action, in a context of low interest rates, taking the lead in the fight against secular stagnation. This resonates particularly well in Italy given its low potential growth.

This is not the first time a respected non-political personality with strong European credentials become Prime Minister in Italy – it is actually a fairly usual pattern. These experiences deal well with emergencies but fail to tackle the long-term structural issues with the kind of ambition Mario Draghi sketched out in his speech (“taking inspiration from those who were involved in rebuilding the world, Europe and Italy after World War II”).
We see two differences with the Mario Monti experience of 2011-2012. First, Draghi is not tasked with delivering fiscal austerity together with potentially unpopular structural reforms. Quite the opposite. He could draw on the EU’s Recovery and Resilience Facility as well as on the ECB’s insurance against market pressure. Second, Monti appointed a purely technocratic government. The latest reports suggest that representatives of the parties supporting Draghi would be in cabinet. This matters. The political personnel need to take ownership of the policies in front of public opinion. This would make it more difficult to withdraw support if and when “the going gets tough”.

The Rimini speech also called for a reform of the European economic framework. This will be crucial for Italy, and hence for the fate of the whole monetary union. A structural reform platform primed by public spending will need time to prove itself to the markets. The fiscal surveillance system needs to evolve. As President of the ECB, Draghi did wonders thanks to Angela Merkel’s silent support (her refusal to criticize him for his unorthodox monetary policy). As, potentially, head of government of the Euro area’s third largest economy, he will have to get explicit support for a new framework.

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