ROME: The Italian head of state rejected the resignation of Prime Minister Mario Draghi on Thursday and asked him to address parliament to get a clear picture of the political situation.

Draghi had tendered his resignation after the 5-Star Movement, a party in his ruling coalition, did not take part in a confidence vote in the government.

The confidence vote had become a focal point for tensions within Draghi’s government as its parties prepare to fight each other in a national election due by early 2023.

The decision by the 5-Star party to boycott the confidence vote on Thursday triggered the sequence of events that prompted the 74-year-old Draghi to say he would quit.

Draghi had said he would not want to lead a government without 5-Star, which emerged as the largest party in the previous election in 2018 but has since suffered defections and a loss of public support. Italy has not had an autumn election since World War Two as that is normally when the budget is drawn up and approved by parliament.

The risks of a collapse of a Draghi government rippled through financial markets on Thursday where Italian bond yields rose sharply, indicating investors demanding a higher premium to hold its debt, and shares fell to their lowest levels since late 2020. The turmoil comes at a challenging time for Italy, the third largest economy in the euro zone, where borrowing costs have risen sharply as the ECB starts tightening its monetary policy.

The ECB is working on a new tool to contain divergence between German borrowing costs and those of highly indebted member states such as Italy.

Draghi, Italy’s sixth prime minister in the last decade, had been seen as providing reassurance that Italy would respect any conditions attached to the new mechanism but his departure would create fresh uncertainty.

Published in Dawn, July 15th, 2022