April 10, 2021

Ninety days in the Chigi


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In April 1985, Inter Milan and Real Madrid played in the semi-finals of the UEFA Cup. In the first leg, held in the Lombard capital, the result was 2-0 for the transalpine squad. After finishing the match, Juan Gómez Juanito, Madrid player, pronounced the phrase ‘Ninety minutes at the Bernabéu are molto longo’, unforgettable for the fans of the Chamartín club. In the return leg, held two weeks later, Real Madrid came back from the tie, endorsing the ‘Nerazzurri’ 3-0, proclaiming themselves a finalist in the competition. Thus another episode was written in golden letters of the mystique of comebacks at the Bernabéu. Juanito’s faith, expressed as a purpose for revenge, had its reason for being.

On February 13, a good football fan, although not a ‘tifosi’ from Inter but from Roma, and a former central banker, Mario draghi, he was sworn in as Prime Minister of Italy. The new tenant of the Chigi Palace will face a major challenge, equivalent to that of Real Madrid in the aforementioned tie, and not only because of the difficulty of providing a certain longevity to his mandate, given the usually ephemeral nature of his predecessors, or favoring the healing of the deep human wounds left by the pandemic in the Italian population. Economically, above all, well Draghi receives a country that contracted by 2% in the last quarter of 2020 –Much more than 0.7% for the Eurozone aggregate– and which accumulates a debt-to-GDP ratio of 160%, the highest among the community partners.

If the phrase that Juanito coined was attributed esoteric qualities, what about the famous ‘whatever it takes’ (“Whatever it takes”) pronounced by Draghi in the summer of 2012, which decisively marked the turning point in the sovereign debt crisis in the euro zone, the main concern for the financial market at that time. Well, true to that statement, and giving it materiality, the new prime minister wants to go back to doing everything in his power and has already drawn a ambitious structural reform agenda, which includes a review of the tax system, greater investment in the education system and the optimization of public administration.

It seems intelligent, how could it be otherwise, Draghi’s approach to want to strengthen one of the three variables that explain the potential growth of any economy: the productivity, whose flagrant deficit has placed Italy at the top of competitiveness among major European countries over the last decade. The fact is that there is much room for the long-term growth expectations of the Italian economy to be revised upwards: between the first quarter of 2009 and the fourth of 2019, the GDP of the euro zone as a whole grew by 15.4 % in real terms compared to 2.5% for Italian. Reflecting this, in the same period, the European stock market (MSCI EMU index) appreciated by 217% compared to 127% of the Italian (MSCI Italy index), while housing prices in the whole of the Economic Union and Monetary grew by 19% compared to the contraction of 17.5% in Italy.

Draghi, to achieve his purpose, will walk on the same fine wire that his predecessors stepped on, and that is none other than managing with the greatest possible skill the difficult balance between (i) meeting the demands of Brussels in order to have the funds of Next Generation EU from the evaluation of the national plans that will take place in April and (ii) keep its Executive together. That of the theory of the short blanket of the Brazilian soccer coach Elba de Padua Lima, nicknamed Tim.

But if there is anyone who can achieve the feat, like Real Madrid against Inter, that is Draghi. And it is that both his political capital and his power of persuasion are formidable; after all, he was the one who convinced the German Bundesbank to end up praising quantitative easing.

His strategy will go through reaching agreements on indivisible reforms at home and using his bargaining power to convince Europe to demand the lightest possible conditionality. As expectations are as low among investors, as they were among Madridistas before achieving the aforementioned comeback, any slight progress in terms of reforms in Italy could improve the perception of the profitability / risk binomial of Italian assets and show that 90 days Draghi’s mandate may be sufficient.

Alf0nso García Yubero is Director of Strategy Santander Private Banking

Alfonso García YuberoAlfonso García Yubero

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