Draghi's capitalist model that restructured Italy is running aground

On June 2, 1992, Italy’s then-chief Treasury official, Mario Draghi, stepped aboard Queen Elizabeth II’s yacht, Britannia, docked near Rome, to ask a group of British bankers for help in slimming down the country’s bloated public sector.

Almost three decades later, and a year since he left as European Central Bank president, what became one of the region’s biggest privatisation programs is now in reverse. Companies from the wave of selloffs Draghi inaugurated that day to promote growth and reduce debt, such as toll-road operator Autostrade, are being clawed back in a new era of state intervention.

Unlike those privatisations, the current expansion isn’t matched by a coherent vision beyond fighting the coronavirus crisis, an omission that is straining the governing coalition. The political battle to define it will determine how far Italy recreates a state-driven capitalist model that it previously sought to discard.

“A more active role for the state in the economy is justified in a transition period, but it must have a clear program with an exit plan,” said Nicola Nobile, senior euro-area economist for Oxford Economics in Milan.

The list of recent interventions by Prime Minister Giuseppe Conte’s government is already long, with the populist Five Star movement in particular pushing its left-wing Democratic Party partners hard for even more of a state role.

Telecom Italia, Autostrade per l’Italia, and Italy’s stock exchange have all been recent targets, with ministers pushing state-backed lender Cassa Depositi e Prestiti to take or expand stakes in all three. CDP also has a major holding in digital payments giant Nexi SpA and has been given a 40 billion-euro war chest to do more.

Meanwhile, the government has wielded new so-called “golden powers” to veto foreign acquisitions and is trying to stop France’s Vivendi SA from exercising voting rights on Silvio Berlusconi’s media company, Mediaset SpA. It’s also been pressuring lender UniCredit SpA to find a buyer for bailed-out lender Banca Monte dei Paschi di Siena SpA.

The crisis has provided a window of opportunity for such action, generating the urge to restructure a battered economy. The push has been helped by the suspension of EU limits, both budgetary and regulatory, that in the past constrained government action.

“This is a transitory situation,” Italy’s Minister for European Affairs Vincenzo Amendola insisted in a December 4 interview. “Things will settle back to normal, and freedom of competition will remain a fundamental part of the EU identity.”

Such state activism is breeding unease among international investors. Minority shareholders in Atlantia SpA, Autostrade’s parent company, have complained about threats from government members, and that the sale to CDP wouldn’t offer a fair value. The EU’s antitrust watchdog is scrutinising several other operations, in particular Alitalia.

The new interventionism is a source of tension within Conte’s squabbly coalition, as allies tussle over governance and top jobs at the companies. One official, speaking on condition of anonymity, also complained about a lack of coordination and planning.

But the overall trajectory is widely shared, with many politicians harking back to the times of IRI, or Institute for Industrial Reconstruction, a state holding company established under the fascist regime in 1933 which took on a reinvigorated mission after the war and owned many major Italian companies until the 1990s. For others however, such a nostalgic view is rose-tinted.

“The problem is, no cost-benefit analysis seems to have been carried out on which sectors to invest in beyond spur-of-the-moment political necessity,” said Rosamaria Bitetti, an economist and lecturer at Luiss University in Rome.