Thomas Fazi – Mario Draghi: don’t believe the hype

Draghi is just another Emmanuel Macron

Thomas Fazi is a writer, journalist and translator. His latest book ‘Reclaiming the State’ is published by Pluto Press.

Credit: Getty

Ever since the former president of the European Central Bank (ECB) Mario Draghi was sworn in as Italy’s new prime minister, in mid-February, both the local and international press have been gripped by an irrepressible enthusiasm, often bordering on the kind of cult of personality that we tend to associate with totalitarian regimes rather than the “liberal-democratic” societies that Western countries claim to be. In the face of such sycophantic fawning over representatives of the global elite – of which Draghi is an almost caricatural representation –, or what one may more prosaically call propaganda, is it really that surprising that more and more people are turning away from the corporate and mainstream media towards independent, alternative source?

Recent examples of unbridled “Draghimania” include these articles in The New York Times and Financial Times. The arguments are more or less the same: thanks to Draghi, Italy has gone, in just a few months, from being “the EU’s juvenile delinquent” to being “the model European”, as a senior policy fellow at the European Council on Foreign Relations (ECFR) quoted in the FT unironically puts it.

If we are to believe this fanciful narrative, before Draghi arrived on the scene, Italy was “lagging its European partners in economic dynamism and much-needed reforms” and had become “a pariah inside the EU”, having been overrun by dangerous “populists” (namely the Five Star Movement and the League), which had transformed Italy into “an unstable and untrustworthy partner led by politicians who wanted to weaken the EU, and flirt with Moscow and Beijing”, thus ruining the country’s international reputation.

Now, however, all that has changed. Not only is Draghi finally spearheading those “reforms” that are allegedly “much-needed” by Italy – his “reform plan” recently submitted to Brussels as a condition for accessing the funds from the EU’s much-touted “recovery fund”, the European Recovery and Resilience Facility (RRF), has been extolled by Bloomberg as “a once-in-a-lifetime opportunity [to] modernize a dysfunctional state”. But, the Financial Times tells us, “Rome’s voice [is now] being heard loud and clear in Paris and Berlin” and in fact “is increasingly setting the agenda as the EU attempts to emerge from the COVID-19 pandemic”.

In particular, Draghi is credited for allegedly “shaking up” the EU on its (notoriously slow and chaos-ridden) vaccine rollout, following his decision to seize a shipment of vaccines destined for Australia, which is said to have pushed the European Union into “authoriz[ing] even broader and harsher measures to curb exports of COVID-19 vaccines badly needed in Europe”.

Finally, Draghi has also been praised for leading the way on fiscal policy in Europe, by announcing “Europe’s biggest stimulus plan”, which is purportedly “helping to drive the bloc more into line with a push across the advanced world to prioritize extraordinary stimulus as the central response by governments to an exceptional economic crisis”.

Summing up, we are essentially being told that Mario Draghi has single-handedly kickstarted a revolution not only in Italy but across the entire EU. And all in the course of a few months. But do any of these grand claims stand the test of basic scrutiny?

Let us begin with the notion that Italy’s problems fundamentally lay in its lack of liberalising reforms and that by embarking on said reforms the country can finally put itself on a path of growth once again. This is an old trope, particularly popular north of the Alps.

Unfortunately, it is completely unsupported by the data. Indeed, since the early 1990s, as this recent study documents, Italy has introduced a huge number of liberalising reforms ranging from corporate governance reforms aimed at making corporate control more contestable, to privatisation of the main state-owned banks and enterprises, as well as reforms enhancing labour market flexibility and increasing product-market competition. Indeed, the data “shows that Italy introduced liberalizing reforms more intensely than most other countries, especially from 1992 on, more than Germany and, especially, France”. Just over the past decade, Italy’s “ease of doing business” ranking, according to the World Bank, has jumped from the 78th to the 58th position, a 20-point improvement, with no noticeable impact on growth.

Indeed, if anything, the introduction of these reforms has coincided with the beginning of the stagnation of the Italy’s economy. That is not a coincidence: it has now been empirically documented (see here and here) that Italy’s decades-long crisis should be regarded as a crisis of the post-Maastricht order of Italian capitalism, based upon privatisation, fiscal austerity, wage compression and the radical deregulation of labour markets (what are euphemistically called “structural reforms”), which represent the essence of the EMU macroeconomic rulebook. Interestingly, as I explain in this article, one of the main sponsors of this “reform regime”, as far back as the early 1990s, was none other than Draghi himself. So the last thing Italy needs is more of the growth-killing reforms that have gotten Italy into this mess in the first place.

Indeed, to those that claim that Italy is blessed to finally have a staunchly pro-EU leader at the helm of the country, it is probably worth reminding that Italy’s governments, for the past decades, have all been staunchly pro-EU, and that the Five Star Movement-League government was in power for just over a year (2018-2019), which makes it hard to apportion the blame for Italy’s problems to the “populists”.

As for the notion that Draghi has “shaken up” the EU’s vaccine rollout, it’s not clear what this refers to. The EU continues to lag dramatically behind other advanced (and even many non-advanced) nations in terms of vaccine coverage, and its procurement strategy continues to face one hurdle after another. Furthermore, the fact that EU enthusiasts are now praising Draghi and the bloc as a whole for finally curbing the export of vaccines is particularly surreal, given that the EU is founded on the sacralisation of the four capitalist freedoms par excellence – the free movement of goods, services, capital and persons – and more in general on the limitation of state intervention in the economy.

The fact that the same free-market enthusiasts (including Draghi) that for years have defended this architecture are now cheering for export controls is grotesque – and is a telling demonstration of the fact that the EU can survive only by constantly breaking its own rules. But the whole situation is made even more grotesque by the fact that the EU has not implemented a real export ban. So we are in the presence of a narrative that is not only incongruous, according to its own standards, but also untrue. Indeed, the latest data shows that the European Union continues to export more vaccines than it administers, with 33,4 million doses having been exported from the EU in the week between April 6 and April 13 alone.

Speaking of vaccines, it’s also worth noting that Draghi wasn’t even invited to join the recent conference call held between by Merkel, Macron and Putin to discuss Russia’s Sputnik V vaccine – so much for “setting the agenda in Europe”.

Finally, Draghi’s “massive” stimulus plan, upon closer inspection, is much less impressive that one may think. Draghi has announced that he will push the government’s deficit to 11.8 per cent of GDP. Now, while that may sound like a lot, one should keep in mind that the previous year’s deficit was 10.8 per cent of GDP. So we are in the presence of a one-per-cent increase in the deficit, at best. This is not much of a stimulus. As Ashoka Mody, former deputy director in the International Monetary Fund’s Research and European departments, noted on Twitter: “The figure shows the deficit, which is not the same as a stimulus. The deficit is high because the economy collapsed this year. A stimulus is an increase in the deficit to propel growth. My reading of IMF numbers is that, by both stimulus and growth metrics, Italy will lag next year”.

All in all, Draghi is on track to becoming a Macron 2.0: at the time of his election, the French leader was eulogised by the mainstream media as a great modernising, pro-EU reformer as well; today he has one of the lowest approval ratings in Europe. You can gloss over reality as much as you like, but sooner or later it catches up with you.

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