Italian President Mattarella has summoned former ECB Chief Mario Draghi following failure of government mediation talks - Reuters

Italian President Sergio Mattarella has summoned former ECB President Mario Draghi and will meet with him on Wednesday morning, reported Reuters, following a breakdown in government mediation talks. The President is likely to ask Draghi to head the country's next government.

Earlier in the day, the Italia Viva party had announced that talks aimed at reviving the former government coalition had failed. For context, the Italian Viva party recently withdrew its support from the former governing coalition under former PM Guiseppe Conte. Last week, Conte had to resign as PM and has since then been attempting to build a new ruling coalition, but it looks as though his efforts have failed. 

Opposition leader Salvini is calling for new elections. According to President Mattarella, there are only two options left; 1) elections and 2) a new government. Mattarella expressed concerns about how an election could be carried out in the midst of the pandemic and could curb government activities at a crucial moment for the country. So it seems he favours the creation of a new government, seemingly with Draghi as PM. 

Market Response

Uncertainty to do with the Italian political situation has weighed on EUR on Tuesday. As long as the option of an election (which might favor anti-EU candidates given the bloc's sluggish vaccination efforts) remains on the table, this will weigh on EUR. But if a new government coalition can be formed around former ECB Chief Draghi, this ought to alleviate concerns and be a EUR positive. Draghi would be seen as a "safe pair of hands", much as former Fed Chair Janet Yellen is seen as Treasury Secretary in the US.