Is Italy's Economy Minister Draghi's Man in Rome?
When Mario Draghi left the Italian central bank to go to the European Central Bank (ECB) in 2011, he backed his number two to replace him - only for then prime minister Silvio Berlusconi to oppose the move. Now that Fabrizio Saccomanni has "made it" to head the economy ministry, markets may expect him to be the ECB's new man in Rome.
"Saccomanni is definitely the guy that can keep the dialogue open between Italy and the European Central bank," Giada Giani, European economist at Citigroup told CNBC on Monday. "He was Draghi's appointed number two at the Italian central bank so he was already his man within the bank. He was definitely one of the favorite guys to succeed him when he left to go to the ECB," Giani added.
She said that 71-year old Saccomanni's appointment was likely to have been at the behest of President Giorgio Napolitano, who reluctantly agreed to accept another term as president. "Three key technocrats have been retained in the new cabinet and Saccomanni was one of them. I think it's safe to say that Napolitano probably put some conditions on staying in office and wanted people he could trust in key conditions. Saccomanni is one of them."
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Markets are waiting for the details of Italy's economic plan which will be presented to parliament on Monday though Saccomanni signalled his intentions on Sunday when he said that he planned to cut taxes and public spending and lower borrowing costs.
In an interview with the La Repubblica newspaper on Sunday, Saccomanni said that he wanted to "restructure" the state budget to support companies and low-earners. He added that he wanted to restore trust in Italy's economy and financial institutions, which have been damaged with a number of high-profile scandals over the last year.
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Saccomanni is currently deputy governor of Italy's central bank, a post that he will have to resign from, a source at the central bank told CNBC. But his experience at the bank could help Saccomanni come up with a plan to stimulate Italy's economy which has not seen economic grown in six consecutive quarters. Italy's previous administration, led by Mario Monti, kicked off those reform efforts last year.
Saccomanni has a degree from Milan's Bocconi university and a masters from Princeton and has spent much of his career at the central bank.
Professor Marcello Messori who teaches international economics at the Guido Carli University in Rome, told CNBC that Saccomanni was an "independent" man who would not be pushed around.
"Saccomanni is an independent man. It will be impossible for him to make decisions that he does not agree with," Messori told CNBC on Monday.
But, Saccomanni could have an uphill struggle dealing with the "fiscal problem" in Italy, Messori added.
"Taxation is very high for firms and workers. He will have to work out how to eliminate a tax on property while decreasing the fiscal burden on businesses. It's quite hard to do that," Messori said.
The apparently erudite Saccomanni (he is a classical music and cinema lover and writes poetry in the Roman dialect, La Repubblica reported) he will have to use the art of persuasion to counter opposition from Berlusconi, who is once-again influential in parliament as his party secretary has become deputy prime minister. This could prove problematic for Saccomanni, one strategist told CNBC.
"The good news for Mr Saccomanni is that he faces no pressure whatsoever from the bond markets which, if anything, would prefer Italy to ease up on austerity. The bad news is that he faces intense pressure from both the centre-left and the centre-right to loosen the purse strings even more," Nick Spiro, head of Spiro Sovereign Strategy, told CNBC.
"Mr Saccomanni is the technocratic face of a political government whose priority is to put an end to the recession. Technocracy in Italy ran its course quite some time ago. Italy has entered a "post-austerity" phase and Mr Saccomanni's job is to reassure the markets that Italy will remain fiscally responsible," he added.
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Dr. Loredana Federico, an economist from Unicredit, said in a note on Monday that the she expected government discussions to center on a proposed VAT (sales) tax hike, revoking an unpopular property tax and measures to support employment and funding for small and medium-sized businesses – the backbone of the Italian economy.
The coalition government of politicians and technocrats from the center-left and center-right under Enrico Letta, must win two votes of confidence in parliament on Monday where he is epxceted to deliver a speech on his economic plan.
"The priorities in his speech are likely to be urgent measures to pull the country out of recession and some institutional reforms, " Federico said. "It will be interesting to understand how he addresses the need to find resources for supporting growth, while remaining compliant with European budgetary constraints. The first declarations of [Saccomanni] seem to be in the direction of an ongoing reduction in public spending, while trying to reduce taxes and boost confidence for households and firms (including banks)," she added.
"While the latest news is positive for markets, the task of the new PM won't be an easy one. A fragmented parliament and a government coalition backed by rival parties until yesterday leaves some uncertainty on how the urgent economic and institutional reforms Italy needs will be tackled," Federico said.
-By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt