Draghi Says He Will Resign as Prime Minister; Italian Bonds Tank
2022.07.14 20:26
Budrigannews.com – Mario Draghi is to resign as Prime Minister of Italy, after losing the support of one of the country’s largest political parties from his broad coalition government.
“The conditions are no longer in place for me to carry on,” Draghi told reporters. “I will tender my resignation to the president this evening.”
The news is a blow to Italian bonds and stocks, which have benefited from the presence of the widely respected former President of the European Central Bank during his time at the helm.
Italian bond yields have surged in the last two days after the Five Star Movement (M5S) said it could no longer support the government, dissatisfied with what it saw as inadequate support for lower-income people in the face of spiraling inflation.
The yield on the benchmark 10-year Italian bond lurched higher again on the news, rising 12 basis points to a two-week high of 3.51%. The spread to the comparable German 10-year bond, widened to 234 basis points, the widest since June.
The FTSE MIB stock index, meanwhile, had earlier closed down 3.4% at its lowest since November 2020.
Draghi’s resignation comes only a week before the European Central Bank is set to raise its key interest rates for the first time in a decade, raising borrowing costs for one of the developed world’s most heavily indebted countries.
The rise in borrowing costs will prove especially challenging given that Italy’s economy is fast sliding into recession, with energy prices rocketing and an increasingly severe drought hurting both the agriculture sector and hydroelectric power generators.
