The political instability threatening to cut short Mario Draghi’s time as Italian prime minister has laid bare the challenges confronting his former colleagues at the European Central Bank as they prepare to unveil historic policy changes this week.
Christine Lagarde, who replaced Draghi at the helm of the ECB in 2019, is on Thursday expected to announce its first interest rate rise for over a decade while also outlining a new scheme it hopes will prevent higher borrowing costs from triggering another eurozone debt crisis. By the time it does the political situation in Rome could become even more volatile.
Italian bond yields rose sharply last week after the Five Star Movement, which forms part of Draghi’s national unity government refused to back him in a confidence vote, prompting the prime minister to offer his resignation. Though the president turned him down, Italians are now waiting to see whether Draghi is willing to remain in office, or whether the country will have snap elections. Any sign that the prime minister will step down is likely to trigger a rise in Rome’s borrowing costs.