Mario Draghi’s presidential offer frightens Italian investors

Bond markets are preparing to return to the political turmoil in Rome after a key measure of investor risk peaked in the 16 months ahead of a crucial vote on the next Italian president.

The difference between the yields of Italian and German bonds widened to the largest since Mario Draghi became prime minister after becoming the leader in the presidential race next week.

The meter is closely viewed as a measure of market concern over the volatile Italian politics as fears grow that far-right parties may gain power in early elections.

The Italian parliament will decide on the new president on January 24, but investors fear that Draghi’s plans to shake the economy out of a decade of stagnation will suffer if he changes roles.

Italian borrowing costs have risen in recent weeks for fear that Mr Draghi’s resignation would trigger early elections that will introduce far-right Brothers of Italy and Lega.

The yield on Italian 10-year bonds has risen from 0.91 to 1.35 percent in the past month as the cost of government loans rises around the world.

Lorenzo Codogno, a former chief economist at Italy’s finance ministry and founder of LC Macro Advisors, said “some reforms would certainly be in jeopardy” if the right came to power, especially plans to shake social welfare and pensions.

“In the past, we have seen that financial markets are very sensitive to political developments, especially if [they] they lead to a government that might be less committed to Europe, less committed to reform, ”he said.

The Italian president has a ceremonial role that becomes crucial in times of political controversy as he acts as a judge in Rome. The very popular Mr Draghi, former President of the European Central Bank, and former Prime Minister Silvio Berlusconi are considered the most likely candidates for the secret ballot.

Jack Allen-Reynolds of Capital Economics said new elections that resulted in a new government would jeopardize the plan.

“The new government could also have different priorities, which are not necessarily in line with the current recovery plan. No matter what the new government is, he has an incentive to play ball in the recovery plan, ”he said.

“The sums of money available are huge and if Italy doesn’t adopt reforms, it doesn’t get the money.”

Brothers from Italy and Lego Matteo Salvini are vying with the center-left Democratic Party for first place in the polls as they speculate on early elections.