Eurozone rescue fund proves headache for Italy PM Meloni

Italy is under pressure from its EU allies to ratify as soon as possible, as the reform cannot come into effect until all national parliaments agree.

Published: 29th June 2023 11:44 AM  |   Last Updated: 29th June 2023 11:44 AM   |  A+A-

FILE - Italian Premier Giorgia Meloni at the Parliament's Chamber of Deputies, Oct. 25, 2022. (Photo | AP)


MILAN: Italian Prime Minister Giorgia Meloni has softened her once strident anti-EU views but the ratification of a reform to the eurozone's bailout fund has left her in a quandary.

Italy is the only country that has not yet ratified a 2021 reform of the European Stability Mechanism (ESM), which strengthened the fund's financial firepower and increased its authority to supervise countries in difficulty.

But a draft ratification law put forward by Italy's centre-left opposition has exposed tensions within Meloni's government.

Her far-right Brothers of Italy party has long been critical of the European Union, but since taking office in October, Meloni has chosen not to rock the boat with Brussels.

Her main coalition partner, Matteo Salvini of the anti-immigration League party, is more overtly critical of the EU and is particularly opposed to the eurozone bailout fund.

On the other side of the coalition is the late Silvio Berlusconi's right-wing Forza Italia, which has long supported ratification even if its position has recently become more nuanced.

Disagreements exploded into the open following the publication last week of a technical opinion in favour of ratification from the chief of staff to Economy Minister Giancarlo Giorgetti -- a member of the League.

When the ratification bill moved to a parliamentary committee, government lawmakers -- unable to agree on a common approach -- simply failed to turn up.

However, the bill progressed with the support of opposition MPs, with a full parliamentary debate planned for Friday.

'Sign in blood'

Created in 2012 in the heat of the eurozone debt crisis, the ESM borrows on the financial markets to provide loans at below-market rates to eurozone states in difficulty, who must in return implement reforms to their public finances.

Spain, Portugal, Greece, Ireland and Cyprus have all used it but Italy remains deeply suspicious, with many considering it a tool for northern European countries to impose austerity on the south.

There are also fears in Italy that if it used the ESM, it would be forced to restructure its enormous debt, valued at 144 per cent of GDP -- the highest ratio in the eurozone after Greece.

"As long as I count for something, Italy will not join the ESM -- I can sign that in blood," Meloni said in December 2022.

'Playing for time'

But in recent days, Meloni has chosen to criticise not the ratification itself but the timing of any parliamentary vote, last weekend urging its delay.

The government is trying to "play for time to find common ground and avoid exposing its internal divisions in public," said Franco Pavoncello, professor of political science at Rome's John Cabot University.

Italy signed the 2021 reform along with other eurozone members.

But it is under pressure from its EU allies to ratify as soon as possible, as the reform cannot come into effect until all national parliaments agree.

Aware of its leverage, Rome is "trying to use the ESM treaty as a negotiating tool to obtain something in terms of fiscal rules", said Lorenzo Codogno, former chief economist at the Italian Treasury.

However, he said this was a "very risky strategy", that would potentially create a clash with Brussels.

Meloni confirmed Wednesday she was seeking with Brussels a "comprehensive approach, in which the new rules of the stability pact, the completion of the banking union and the financial safeguard mechanisms (ESM) are discussed as a whole".

The EU is currently debating reform to its fiscal rules, known as the Stability and Growth Pact, which set limits on member states' budget deficits and debt.

"Maybe they will obtain something but I think that Europe's patience is reaching its limits," said Pavoncello.

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