MNI BRIEF: Eurogroup Chair To Call On Italy To Approve ESM

Eurogroup Chair Paschal Donohoe will stress at Friday’s Euro summit the increasingly urgent need to finalise ratification of changes to the European Stability Mechanism treaty in order to provide banks with a much-needed reinforcement of the Single Resolution Fund and avoid an adverse market reaction.

Italy is the only euro area country yet to ratify the treaty and Italian Prime Minister Giorgia Meloni is expected to brief leaders on the progress towards parliamentary approval.

Capital build-up for the backstop will soon reach EUR80 billion, with national guarantee lines providing transitional finance. These guarantee lines will expire at the end of this year should Italy fail to ratify the treaty. (See MNI INTERVIEW2: Italy’s ESM Ratification More Urgent - Buti)

Even EUR80 billion would not be enough to resolve a bank crisis on the scale of the Credit Suisse meltdown in March, officials believe, meaning that responsibility for future collapses would be in the hands of the national authorities.

Responding to Italian demands that the ESM should refocus on encouraging investment and economic growth, Donohoe wrote in a letter to EU leaders before the summit that this is something to be discussed after ratification. In July, Italy’s parliament postponed a vote on ESM ratification, giving itself four months for deliberation.