Mario Draghi represents the new Italian cabinet after the revolt of EU funds

LONDON – The new Italian Prime Minister Mario Draghi it is already transforming the political scene in Rome and causing a sudden rise in stock markets.

On the trail of fresh political chaos, first European Central Bank the president is called upon to become Italy’s new leader and save its turbulent economy. His arrival was described as “better than expected” after he garnered broad political support and stopped the threat of populist forces.

Draghi, who was sworn in on Saturday, introduced his government over the weekend – a group made up mostly of politicians from different parties and some technocrats in key ministries.

“This is the best possible outcome and better than I expected, as it provides a degree of stability and political accountability,” Erik Nielsen, the group’s chief economist at UniCredit, said in a research note on Sunday.

Draghi has managed to gain the support of most of Italy’s major political forces, following concerns that a purely technocratic team will have a short lifespan. The next general elections in Italy should not be held until the beginning of 2023.

By securing broad political support and a diverse team, Draghi has already improved his prospects for Italy. Analysts have become more in the mood for it Italian government bonds, referring to “expectations from more efficient use of NGEU (EU next generation) funds, structural reforms and better prospects for vaccination”, UniCredit notes in a note.

At the same time, Italy’s main stock index it has grown by more than 7% since the beginning of the month.

Barclays analysts believe economic growth it will be picked up in the second half of the year as well. “The return of Mario Draghi, now Italy’s prime minister, has drastically changed the political landscape,” Barclays analysts said in a note Monday.

They explained that the one-month political crisis will be won by the anti-immigration party Lega. The more centrist PD had previously opposed joining forces with Lego and this new unity created tensions within the party. Meanwhile, another major party, the Five Star Movement, saw internal divisions when it approved Draghi’s prime ministerial post last week.

That could change the picture in Italian polls. The Lega is still the most popular political party with about 24% public support. However, the Five Star Movement and the PD – which formed the previous government – could face failure. The PD, which enjoyed 20% public support in January, lost one percentage point poll published Feb. 11.

At the same time, Draghi’s arrival has also dampened the rhetoric of populism, at least for now.

“Today what we can say is that populism in Italy is weaker both because of Draghi’s intervention and because of the pandemic intervention and because of European integration,” Lorenzo Castellani, a historian at LUISS private university Guido Carli, told CNBC last week.

Italy had two main populist forces after the 2018 general elections – the Lega and the Five Star Movement. But both have now grown to have a smaller anti-EU stance, Eric Jones, a professor at Johns Hopkins University, told CNBC on Monday.

“The five-star movement made its pivot when it supported Ursula von der Leyen (President of the European Commission) in June 2019; Lega made a pivot when it decided to support Draghi in forming an open pro-European government of national unity last week,” he added.