Draghi drama spells more trouble ahead for Italy

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Italian Prime Minister Mario Draghi remains in office, for now, after the president rejected his resignation offer yesterday. But the high-intensity political drama unfolding in Rome spells more trouble for Italy amid weakening economic performance, soaring inflation and a looming gas supply crisis.

In Skopje, European Commission president Ursula von der Leyen made an attempt at convincing the entrenched opposition in the North Macedonian parliament to embrace a French proposal that could unblock the Balkan country’s EU membership bid.

And in lighter (though not calorie-wise) news, the EU’s top court ruled that Danish dairy producers should not name their cheese feta.

Super Mario, buffering

Mario Draghi’s frustration with Italy’s fractious political parties, and their pre-election political manoeuvring, could soon bring an end to his term as prime minister amid gathering storms on the economic front, write Amy Kazmin in Rome and Sam Fleming in Brussels.

“The majority of national unity that had supported this government since its creation is no longer there,” Draghi said in a statement as he offered to resign. President Sergio Mattarella has rejected that offer and asked him to address parliament next week to assess how much support his government would have.

Markets were quick to react to this fresh bout of political turbulence: Italian stocks sold off yesterday, with a FTSE gauge of equities in the country sliding 3.4 per cent. The yield on Italian 10-year government bonds rose to 3.24 per cent, sending the gap with German 10-year yields higher as investors demand a rising premium for holding Italian debt.

Asked about this renewed political upset, EU economics commissioner Paolo Gentiloni (and a former Italian prime minister himself) stressed the importance of not adding political tremors at a time of high tension. “In these troubled waters — war, high inflation, energy risks, geopolitical tensions — stability is a value in itself. Now is the time for sticking together, for cohesion.” 

Forecasts from the EU commission yesterday showed the toll the war is taking on the Italian economy: growth is now forecast to slow dramatically between this year and next, decelerating from a respectable 2.9 per cent in 2022 to only 0.9 per cent in 2023. The commission blamed ebbing real household purchasing power in the face of soaring commodity prices, as well as sliding consumer sentiment, rising fund costs and continued supply chain bottlenecks.

“The risks to the growth outlook are tilted to the downside, in particular in view of potential supply disruptions of natural gas, given Italy’s still sizeable dependency on deliveries from Russia despite recent diversification efforts,” the commission said.

Tensions within Draghi’s national unity government had been rising ever since Russia’s invasion of Ukraine. Draghi has been staunch in his support for the government in Kyiv and a key architect of the tough sanctions against Moscow. But some members of his coalition — including the Five Star and the League — have traditionally had close ties with Moscow and Vladimir Putin.

Those tensions finally boiled over yesterday, when the Five Star party refused to support the government in a critical parliamentary vote on an aid package aimed at cushioning the impact of inflation on the population. Though the package still passed with a majority, Draghi has said he is unwilling to govern unless all large parties currently in the ruling coalition are willing to remain united behind him so he can be effective as a leader.

The suspense will rise as Draghi’s parliamentary appearance gets closer, with some parties eager to try to persuade him to stay on for another few months, and others calculating the likely benefits of early elections.

Chart du jour: Workers wanted

Read more here about the difficulties encountered by the construction sector in Europe. Meanwhile, the EU commission raised its inflation forecasts and cut back the growth outlook for this and next year.

Balkan stalemate

Commission president Ursula von der Leyen was the second top EU official to visit Skopje this month and make the case for the North Macedonian parliament to approve a French proposal that could finally unblock the country’s stalled membership bid, writes Marton Dunai in Budapest.

“We must grasp the opportunity that lies before us to launch accession negotiations,” she told the parliament in Skopje.

But like with EU council chief Charles Michel earlier this month, von der Leyen’s calls fell on deaf ears when it came to the nationalist opposition, which considers the French proposal a betrayal of North Macedonia’s identity and national interests.

During von der Leyen’s speech, opposition MPs held up banners reading “traitors of the people”, “language and identity”, “the people say no, wake up.” Some booed her while she was speaking.

Von der Leyen pleaded with them to change their minds. “Please consider how hard we have tried to get here,” she said. “I encourage you to seize this opportunity. Do the right thing for the peace and prosperity of North Macedonia . . . the future of your country is in the EU and Europe is not complete without North Macedonia.”

Skopje, which joined Nato in 2020 after it changed its name to satisfy Greek demands, has been held up on its EU track by its neighbour within the bloc, Bulgaria. Sofia has blocked the start of EU accession talks because it said the Bulgarian minority in North Macedonia was not given due recognition, and also disputed Skopje’s interpretations of the countries’ common history.

However, Sofia approved a last minute proposal by France in the last days of its EU presidency, essentially lifting its veto. But North Macedonia has yet to agree to that proposal.

Von der Leyen said those bilateral issues were no longer a condition to starting accession talks and that they could be ironed out once Skopje negotiates the terms of its accession in the coming years.

Repeating a pledge by Michel earlier this month, von der Leyen said talks could begin days after Skopje accepts the French proposal for as negotiating framework.

A vote on the proposal could come as early as today but chances are it would be a while before it passes, given that public resistance is still fairly high, including continuing protests in the capital, some of which involved minor violence.

Say cheese (not feta)

Denmark fell foul of EU rules yesterday after the bloc’s top court reprimanded the country for letting local companies use the term “feta” for sales of their cheese outside of the European Union, writes Javier Espinoza in Brussels.

The ruling followed a suit led by the European Commission — backed by Greece and Cyprus — three years ago for failing to block Danish firms from using the term when exporting their own version of a white and crumbly cheese.

This has upset the Greeks in particular who claim feta cheese has been part of their cultural heritage for the last 6,000 years. Denmark had argued that the protection of the term only applied to those sold within the single market but not outside of it.

However, judges at the EU Court of Justice disagreed: “By failing to stop the use of the designation ‘Feta’ for cheese intended for export to third countries, Denmark has failed to fulfil its obligations under EU law.”

For nearly two decades feta has been designated a traditional Greek product by the European Commission, which grants it legal rights within the bloc.

This is not the first time countries have argued over cheese in Europe.

In 2019 Spanish producers of Manchego cheese won a legal challenge to stop competitors from naming their products to look like the quintessential Spanish cheese. Germany also lost a legal battle to use its own version of Italy’s Parmigiano Reggiano, while Cyprus’ claim that a Bulgarian cheese called BBQlumi was too similar to halloumi was rejected.

What to watch today

1. EU affairs ministers meet in Prague

2. G20 finance ministers meet in Bali

Smart reads

• Strongmen, galore: FT’s Gideon Rachman writes about how to get rid of strongmen like Trump, Johnson, Erdoğan, Modi, Xi and Putin. Hint: it’s easier in democracies than in autocracies.

• Central banks, compared: The Bruegel think-tank has gone through two decades of decisions taken by the Bank of England, the Federal Reserve and the European Central Bank, concluding that all three have sought to move by consensus and that decisions to tighten monetary policy were more often taken unanimously than those about loosening.