The recent government crisis hits Italy at a bad time. The north groans between Milan and Venice under the water shortage, inflation is affecting the economy. Germany is also threatened with consequences.
Munich/Rome – Italy is reeling more and more into the crisis, and that in the middle of the economically important holiday season. Drought and forest fires hit the north between Milan (Lombardy), Lake Garda and Venice (Veneto). Agriculture and the huge food industry are groaning under the drought. Added to this are galloping inflation and the energy crisis caused by the Ukraine war.
Italy: Prime Minister Mario Draghi wants to resign – but is not allowed to
And now this too: Mario Draghi, Italy’s Prime Minister, wants to resign in this situation, but is not allowed to. The coalition of “national unity” no longer exists, the 74-year-old Roman said on Thursday (July 14): “I would like to inform you that tonight I will submit my resignation to the President of the Republic. The majority of national unity that supported this government in its formation is gone.”
His coalition partner, the Five Star Movement, had stayed away from a vote of confidence under party leader and Draghi predecessor Guiseppe Conte. A stimulus package had previously been the subject of debate. Only: President Sergio Mattarella rejected the resignation request.
In the video: Italy’s Prime Minister Draghi announces his resignation
Italy, the third largest economy in the European Union (EU), will immediately become a factor of uncertainty within the euro zone. According to the most important indicator of the Italian risk on the financial markets Frankfurter Allgemeine Zeitung (FAZ) the interest rate differential between ten-year government bonds from Italy and Germany. This interest rate differential jumped by more than 5 percent to 222 points. According to the report, the left-liberal Five Star Movement fears it will go under in the next election because the polls are poor. That’s why she crosses it.
While political wrestling is going on in the capital, the economy is waiting for signals from Rome. After she had grown properly before and had good months behind her. A lot is being built because of generous investment subsidies for households, and the tourism industry is booming. The result: the EU Commission recently raised the growth forecast for Italy for this year from 2.4 to 2.9 percent.
Italy: Tourism and construction are booming – but the gas crisis is worrying
An example: Like the Italian news agency ANSA reported, according to the research institute JFC Observatory, 418.5 million overnight stays and a turnover of 31.8 billion euros are expected for the summer months in the seaside resorts. And that only applies to beach tourism. Said turnover should therefore be more than six billion euros higher than in 2021. In June, 800,000 more tourists came than in the same period in 2019, and a total of nine million foreigners visited the holiday destinations between the Italian Riviera in Liguria, the Adriatic Sea near Venice and the Amalfi Coast in the south.
But: For 2023, the EU Commission has lowered the growth forecast from 1.9 to 0.9 percent. Because: Italy is similarly dependent on Russian gas as Germany. In this mixed situation, Draghi is traveling to Algeria this Monday (July 18), which has meanwhile become his country’s most important gas supplier. As head of government, he must attend this appointment. As everywhere in the EU, Rome is also concerned with securing gas supplies, especially for the cold (or at least colder) months. And with it the galloping inflation to curb something.
Inflation in Italy has not been as high as it is now for 36 years. Energy and food prices in particular have risen rapidly. Compared to the same month last year, inflation in May averaged 6.9 percent. In some places, half a kilo of buffalo mozzarella now costs 9.30 euros. It’s just one example among many. “Inflation hits the lowest income brackets. The government has spent around 30 billion euros to mitigate the impact of energy prices on the poorest families, and companies have also intervened. We will continue to do whatever is necessary to help,” Draghi said in early June.
Inflation hits the lowest income brackets.
Italy: Risks from government crisis for the euro zone – risk of costs for tourists and vacationers
But now he is in charge of an unstable government that he himself no longer wants. Political Europe is nervous. With almost 60 million, Italy has significantly more inhabitants than Greece (10.3 million inhabitants), which was once in crisis. If the Italian economy staggers, this also poses major risks for the member states within the euro zone, which would have to help out. Last but not least, this applies to the largest economy in the EU, Germany.
And: Italy’s government crisis can have a major impact on tourists in monetary terms. The government must get both the galloping energy prices and the high inflation under control. Otherwise, their effects on the prices in restaurants, supermarkets or hotel bookings are apportioned. That’s why this industry is also looking spellbound to Rome. (pm)
#Government #crisis #Draghi #poses #risks #Germany #tourists