|
|
The Italian parliament is set to vote on Wednesday to postpone a reform of the eurozone's bailout fund, dealing a blow to EU plans to boost its safety net for failing banks.
The move, delaying approval of revisions to the European Stability Mechanism until November, would leave Rome only a few weeks to formally approve the reformed treaty before an end-of-year deadline.
There's no majority within Giorgia Meloni’s governing coalition in favor of ratification amid the ESM's lingering associations with the controversial bailout conditions during the sovereign debt crisis. In Italy, the "MES" (as it is known by its Italian acronym) has such a bad reputation that it's become politically toxic to endorse it.
Timing is key: From January 2024, eurozone governments will be able to draw from the Single Resolution Fund, a bank-funded pot of money that is meant to hit €80 billion by the end of the year, to cover the costs of winding down a failing lender on a first-come-first-served basis. Under the reformed ESM, which Italy and all other eurozone countries signed up for in 2021, up to €68 billion could be loaned to the SRF, nearly doubling its firepower, and so acting as a backstop.
But if Italy, the only holdout, doesn’t ratify, it would mean that in case of a string of bank failures, no eurozone country could use the backstop, and late-comers could be forced into liquidation.
Fearing those repercussions, EU finance ministers at a recent meeting put pressure on Italy to vote through the changes, according to people familiar with the discussions who were granted anonymity to discuss confidential talks.
But the matter has become difficult politically in Italy with the ESM’s connections with austerity measures imposed on Greece and other countries during the euro debt crisis.
“The ESM is a stigma, so clearly it is an instrument that at present risks holding up resources that could be used,” Meloni has said.
The Luxembourg-based fund is open to discuss other uses for its €400 billion lending capacity, provided Italy ratifies the reform first.