MNI EXCLUSIVE: Italian Objections Further Delay ESM Reform

By Silvia Marchetti

     ROME(MNI) - Prospects for approval of a reform of the eurozone's bailout

fund have receded further, with no deal likely before May at the earliest as

Italy seeks changes to defuse a crisis within its governing coalition, Italian

government sources told MNI.

     A meeting next week of Eurogroup finance ministers will not address the

overhaul of the European Stability Mechanism, key to the planned revamping of

the currency bloc's financial architecture and originally expected to be

approved by early this year, said a senior Italian government official, from the

Democratic Party which shares the ruling coalition. A Eurogroup meeting in March

would only see further discussion of the issue, the official said.

     "It is simply not on the short-term agenda , as there are a few aspects

that still do not fully meet out requests," the official said.

     --5-STAR OBJECTIONS

     In order to come into force, the new ESM treaty must be adopted by all

eurozone members, but in its current form would be rejected by Italy's

parliament, largely due to opposition from the populist 5-Star Movement, the

Democrats' coalition partners. A vote to derail a European reform could trigger

a crisis and potentially bring down the Italian government, which is also

wracked by tension over a proposed reform of the courts system, officials have

said.

     Italy opposes key aspects of the reform, including its provision for

so-called single-limb collective action clauses, which would enable debt

restructuring to be triggered via a single vote among bondholders, and the

introduction of a common methodology to assess debt sustainability, sources

said. Rome is also seeking reassurances as to how debt sustainability and

repayment capacity will be jointly assessed by the ESM and the European Central

Bank.

     "Buying more time is our best option now," said an official linked to

5-Star, adding "Brussels too has little interest in causing this government to

fall over this reform."

     Talk from Brussels that an ESM deal could be signed as early as April was

"nonsense," the 5-Star source said.

     Italy's parliament voted in December in favour of a resolution that would

require changes included in the ESM treaty to be voted on step by step.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

[TOPICS: M$E$$$,M$I$$$,M$X$$$,MC$$$$,MT$$$$,MX$$$$]