Will Mario Draghi’s Center Hold?

Will Mario Draghi’s Center Hold?

A closer look at the Italian prime minister’s career reveals how the tangled history of neo-Keynesian economic thought shaped his technocratic brand.

Mario Draghi on March 10th 2021 (Samantha Zucchi/Insidefoto/Mondadori Portfolio via Getty Images)

Italy’s new Prime Minister Mario Draghi has been hailed as the nonpartisan expert the country needs to get its house in order. But who is Draghi? A closer look at his career reveals the tangled history of neo-Keynesian economic thought and European neoliberalism that inform the prime minister’s technocratic brand.

Draghi was born and raised in Rome, the child of a banker and a pharmacist. In 1970, he received his undergraduate degree from Rome’s La Sapienza, under the supervision of star economist and public intellectual Federico Caffè. Draghi’s mentor took part in the Resistance and was an architect of the new democratic Italy while working in the first national unity government after the Second World War. He also wrote widely for left-wing journals like Cronache Sociali and Il Manifesto, a communist paper sharply critical of the Soviet Union.

Caffè was one of the leading Keynesian economists in Italy. A strong critic of free trade, he saw social protection as key to a well-functioning society. He defended strong welfare states as essential instruments for raising the standards of living for millions in postwar Europe. The thesis Draghi defended with Caffè was not devoted to the welfare state or Keynesianism, however; instead, it argued it was unlikely that a single European currency would be implemented in the short term. Almost fifty years later, Draghi would (in his own words) “save the euro” from its deathbed.

Immediately following his Italian laurea, Draghi went to the United States and attached himself to another prestigious Italian economist with antifascist politics: Franco Modigliani, who became Draghi’s doctoral thesis adviser. Modigliani was teaching at MIT, whose economics department had some of the most famous economists of the day, like Rüdiger Dornbusch, Paul Samuelson, and Robert Solow. The graduate students of the era would become similarly accomplished: from 1971 through 1976, Draghi worked alongside students like Ben Bernanke, Paul Krugman, Lucas Papademos, Kenneth Rogoff, Olivier Blanchard, and Maurice Obstfeld.

Like Caffè, Modigliani considered himself a Keynesian his whole life; as late as 1982, he kept a cartoon hung on his MIT door that read: “With your permission, gentlemen, I’d like to offer a kind word on behalf of John Maynard Keynes.” But Modigliani’s work didn’t align neatly with his political commitments. His research on topics like the lifecycle model of consumption was embraced in the world of corporate finance.

Draghi had entered a cosmopolitan and highly successful social strata. He was working with field-defining economists, in a cohort of PhD students who would quite literally go on to rule the world. “I had very good teachers,” Draghi proudly stated in a recent interview in Die Zeit. “Four of them received the Nobel Prize.” But at the same time, Keynesianism was losing its vaulted status. The fixed exchange rate system collapsed in the 1970s, and everyone was talking about stagflation. It was in this context that Draghi’s ideas began to shift further and further from those of his intellectual forebearers.

Milton Friedman and the Chicago School seemed to have a clear answer to the crisis: get the state out of the way, and “free” the markets. The MIT gang came up with a more hybrid response, which asked governments to take up monetary and fiscal policy responsibilities to revive the economy. They argued that unemployment and stagflation could be prevented through government intervention. At the same time, key figures in the MIT group began fusing finance and macroeconomics. They began to claim that Keynes thought the private market was more efficient than they’d made it out to be.


In these same years, socialists in Western Europe were tearing each another apart over their commitment to the free market in discussions on European integration and democratization in Spain. The free-market wing of the German Social Democratic Party gained a position of prominence within these debates.

But when a second oil crisis sent markets reeling in 1979, a new wave of social movements emerged that were concerned with building up state-run safety nets rather than breaking them down. Socialists rose to power in France (François Mitterrand), Spain (Felipe González), and Italy (Bettino Craxi). Instead of implementing clear-sighted socialist policies, however, the new governments prioritized market discipline to keep in step with the accelerating European integration process.

Draghi was a key player in this process in Italy. In the 1980s and 1990s, he worked as a counsellor to Giovanni Goria, treasury minister under Craxi, and then as the director general of the Italian Treasury during the left-wing coalition government of the former socialist Giuliano Amato. Draghi helped privatize a flurry of state-owned companies, including Telecom (Italy’s telecommunications company), Enel (Italy’s national electricity utility), and Iri (Italy’s most important public holding company). Draghi argued that privatization was needed to reduce debt, grow the economy, and encourage foreign and domestic investment. In a famous 1992 speech, he acknowledged that privatization is “a political decision that shakes the foundations of our social-economic order and redraws the borders between the public and private sphere—borders whose existence has not been questioned for nearly fifty years.” But privatization was coming, he argued, whether Italians liked it or not: “We consider this process—privatization accompanied by deregulation—inevitable because of European integration. Italy can promote it on its own, or it can be obliged to do so because of European legislation. We prefer the first route.”

State-owned companies were sold on the private marketplace in a process that economists now agree was hasty and unsuccessful. (Jonathan Hopkin recently went so far as to say that the privatizations “undermined the case for market liberalism.”) There were political costs, too: Italian voters walked away from left-wing parties.


In 2002, Draghi left politics for Goldman Sachs, before moving to the Bank of Italy in 2005, where he remained for six years. It was his tenure as president of the European Central Bank (ECB), from 2011 to 2019, that brought him back into the spotlight.

On August 5, 2011, the ECB sent a confidential memo to the prime ministers of Italy and Spain that indicated that a change of course was underway. It threw the struggling countries a lifeline, with conditions: they could only grab it in exchange for enormous cuts to government spending. The memo to the Italian government—signed by Jean-Claude Trichet, then president of the ECB, and Draghi, who was waiting in the wings—called for the privatization of local public services, an idea that had just been shot down through a national referendum. It also asked the government to step in to severely limit the collective bargaining powers of Italian unions. Should the government have trouble complying, the memo noted, it could invoke Article 77 of the Italian constitution, which allowed executive action “in cases of necessity and urgency.” As historian Adam Tooze wrote in Crashed: How a Decade of Financial Crises Changed the World, the Trichet-Draghi memo was nothing less than “a blatant attempt to shift the balance of social and political power by means of monetary policy.”

On November 1, 2011, Draghi took over as president of the ECB. In his first major press conference, he explained that his role was to help countries solve their problems by themselves. But how countries should “reform themselves” was key: it was “solid public finances and structural reforms” that “lay the basis for competitiveness, sustainable growth and job creation.”

At the ECB, Draghi demonstrated his commitment to the single European currency by opening the ECB’s coffers. Through a three-year policy of long-term refinancing operations, he pumped nearly €1.5 trillion into Europe’s banks as emergency loans. Draghi’s old classmate Ben Bernanke was pursuing similar policies at the U.S. Federal Reserve through the bank bailouts; another classmate, Olivier Blanchard, was doling out loans as head of the International Monetary Fund to Greece, then led by yet another classmate, Lucas Papademos. The MIT gang represented a united front. (“In circumstances like this, it’s very useful to have people who you trust completely and who think like you,” Blanchard later commented, with a smile.)

To shore up the euro, Draghi created the Outright Monetary Transactions program (OMT), designed to buy sovereign bonds. Many interpreted this as the ECB becoming a lender of last resort. But this was not quite right: the OMT promised the purchase of Eurozone bonds for Southern European countries in dire straits, but only after they agreed to a “conditionality program” premised on structural reforms.

The initiatives calmed markets, not least because the London and New York Stock Exchanges read Draghi as peddling the pro-business gospel. But the bailouts and loans did not stimulate the Eurozone economy. Instead, they exacerbated the crisis; European governments felt duty-bound to respond to the ECB’s policies with austerity politics, which in turn prolonged the economic malaise.

But even if Draghi’s policies did not reverse the damage of the financial crisis and stimulate growth, they did announce the ECB as an entity eager to play a political role beyond its official mandate. And they brought Draghi (“Super Mario,” as he was now known) to the fore as “a fluent exponent of the new hybrid of finance and macroeconomics,” as Tooze described him in Crashed.


When Draghi was tapped by Italian President Sergio Mattarella to step in as prime minister, he was already a household name. Draghi is also the second technocrat trained in economics to rule Italy in the span of ten years (the last one, Mario Monti, was appointed as prime minister in 2011, the same week that Papademos was installed in Greece).

Draghi, who now calls himself an “economically liberal socialist,” pledges he will revive the Italian economy and address the country’s national debt (the biggest as a percentage of GDP in the European Union), while helping ordinary people. Journalists have taken to proclaiming that Super Mario will save not only Italy, but Europe itself. “The battle of European unity has been won right where it started in 1957, in Rome, as Mario Draghi aims to walk towards an ‘ever-stronger Union,’” Bernard Guetta wrote in Le Monde. The talking points are lifted directly from Draghi; at his inaugural speech at the Italian Senate in 2021, he announced, “Supporting this government means endorsing the irreversibility of the choice of the euro.” “Without Italy,” he added, “there is no Europe.” And then, more threateningly: “But without Europe there is less Italy. There is no sovereignty in solitude.”

Draghi’s old mentor, Federico Caffè, disappeared on a mid-April morning in 1988. The mystery of what happened to him remains unsolved to this day, though those close to him have said that the rise of neoliberal dogma had dealt him a crushing and intimate blow. Like Keynes, Caffè criticized the sanitization of financial markets—which he understood as a kind of corrupt “casino”—through “efficient market” theories. But at a commemorative event for Caffè in 2014, Draghi hailed him as a hero and a man for their times. Caffè had supposedly taught Draghi that “it was necessary to end inequalities but also inefficiencies.”

Draghi was trying to hold together an antinomy: the old socialist commitment to equality and neoliberal appeals to efficiency. Can the two really go together? Neoliberalism with a human face has been tried; its failures partly explain the ascendance of right-wing movements in Europe. We can’t say whether Draghi will be Italy’s savior. What is certain is that ordinary people suffer the consequences when economists-turned-politicians emphasize austerity over humanity, and efficiency over solidarity.

Giuliana Chamedes is Mellon-Morgridge Professor of European International History at the University of Wisconsin, Madison. Her first book, A Twentieth-Century Crusade: The Vatican’s Battle to Remake Christian Europe, came out with Harvard University Press in 2019.

Correction: An earlier of this version of this article referred to Draghi’s intellectual framework as “post-Keynesian.” It has been changed to the more accurate term “neo-Keynesian.”