Free Trial

MNI: EU Fears Italy ESM Delays Threaten Bank Resolution Review

(MNI) Brussels

Concern is building among European officials that Italy’s continuing reluctance to ratify changes to the treaty governing the European Stability Mechanism is blocking efforts to review the bloc’s arrangements for dealing with bank failures.

The European Commission had been expected to produce legislative proposals along with the results of its review of the EU’s bank crisis management and deposit insurance framework by the end of 2022, but one official from a European Union national government told MNI that there may be little point in its doing so without Italian ratification of the ESM treaty changes. The ESM reform, held up in the Italian parliament for years, would authorise funding for a backstop of up to EUR68 billion for the EU’s Single Resolution Fund, a key part of any response to a potential banking crisis.

“There’s not really much point in starting a discussion now because the most important building block is to have the backstop for the Single Resolution Fund,” the source said, “If we don’t have that there is no point discussing the elements of resolution if we don’t have the funds, it’s not a good look.”

Despite everything, the Commission might still present its proposal in the coming weeks, he said.


The collapse of Silicon Valley Bank in the U.S. and the hurried takeover of Credit Suisse by UBS increase the urgency of the resolution overhaul, officials said, adding that European Central Bank President Christine Lagarde or Eurogroup President Paschal Donohoe could raise the issue at the bloc’s summit in Brussels on Friday.

While Italy’s right-wing Prime Minister Giorgia Meloni had previously assured European officials that she would push the ratification through parliament, this would be politically challenging for her given the harsh criticism made of the ESM by her party and her coalition partners before they won last year’s elections. A senior Italian official also recognised that Rome would first like to see the outcome of other negotiations such as the protracted debate over the reform of Europe’s fiscal rules. (See MNI: Italy Prepared To End ESM Treaty Stalemate-Officials)

“All of these things are related,” the Italian official said, “Because they will partly determine whether countries have to resort to the ESM or not.”

The source repeated regular assurances made by Italian officials that Rome would never apply for aid from the ESM, whose structure it regards as being unfair to debtor countries, and which it still hopes to change.

European officials dismissed any hope of further modifications to the ESM treaty, which has now been ratified by every other country in the EU. But one official conceded that Rome might require some political cover to justify ratification, and indicated that other member states might be willing to assist in supporting a positive domestic narrative.

Another official in Rome, from Meloni’s junior coalition partners in the League, admitted that some of the Italian criticism of the ESM in the past had created unnecessary political difficulties.

“We probably attacked the ESM too hard, so it is difficult to go back on it without losing face. We made this topic very important to our electorate,” said the League member.

MNI Brussels Bureau |
MNI Brussels Bureau |

To read the full story



MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.