Italy is stonewalling European Union efforts to reform a vital eurozone bailout fund despite being among those in favour when the proposal was initially raised two years ago. Now Rome is believed to be withholding approval pending a more favourable deal covering the broader issue of EU budget rules per se. Analysts ascribe Italy’s refusal to ratify reform of the bailout fund to the ruling right-wing coalition government’s prevailing scepticism and distrust of the EU.
Italy is the only eurozone member yet to green light the proposed treaty, which is designed to allow the European Stability Mechanism (ESM) have a bigger say when it comes to the rescue of failing banks and to helping reduce the risk of investors holding out in sovereign debt restructuring. The proposed reform was agreed by eurozone governments including Italy in 2021. The ESM was originally set up in 2012 to provide a financial firewall for eurozone bloc members in the wake of the sovereign debt crisis.
Even though Italy’s Treasury has just issued a report saying the country could benefit from the proposed reform, the political parties in Prime Minister Giorgia Meloni‘s nationalist coalition are resistant, maintaining that it would make debt restructuring more likely and consequently raise debt servicing costs.
With opposition parties calling for a vote in parliament, Meloni, whose coalition came to power last year, said that won’t happen unless and until the debate is expanded to address ongoing discussions about a broader reform of European budget rules.
“Italy’s interest is addressing negotiations on European governance, which covers the entirety of our national interests,” she told parliament, while insisting that now was not the time “to ratify the ESM”.
According to political consultant Francesco Galietti, sections of the coalition — “some high-ranking civil servants” among them — “hate it when they feel that Brussels is dictating conditions”. In the circumstances, he says Meloni has no wish to hand over “the anti-ESM front” to her main coalition ally and fellow euro-sceptic, Matteo Salvini.
As matters stand, the ESM is not able to support the Single Resolution Fund responsible for dealing with ailing banks unless and until Rome
signs the pact. Meantime, its inability to act is adding to a spreading sense of frustration.
Describing the ESM Treaty as “central to our efforts”, Paschal Donohoe, chairman of
the eurozone finance ministers’ group, vowed to continue “our engagement with Italy on this matter”, in a letter he sent earlier this week to the president of the European Council.
EU officials have let it be known that any attempt by Meloni to link ESM approval to
much more significant budget reform will not pay off.
Francesco Saraceno, economics professor at Rome’s Luiss University and
at Sciences Po Paris, has called out the government for wasting valuable time
over the ESM just when Brussels is redrawing budget rules and looking to
complete a common banking market.
He accused the government of “pussyfooting around the ESM”, which he described as “a very, very small piece in a much larger problem that has to do with overall
European economic governance.”
In April, the European Commission proposed that governments should
ensure their public debt falls by individually negotiated amounts over a
four-to-seven-year period and that they maintain the downward trend for a decade thereafter.
Despite being burdened with the second highest eurozone debt mountain in relation to its GDP after Greece, Italy took issue with the suggestion. Once more the Treasury found itself at odds with PM Meloni when it envisaged no major obstacles to adapting to the recommended new framework.
Announcing budget targets in April, the Treasury estimated that an
additional adjustment of the structural primary balance (excluding one-
off items and business cycle swings) of 0.45 percentage points annually from 2027 to 2031 would be sufficient to meet the new criteria.
Italian officials speaking to Reuters felt such an effort would be well within Rome’s reach.
