MNI: Italy Prepared To End ESM Treaty Stalemate-Officials

Italy has indicated it is prepared to push for its parliament to vote a long-delayed ratification of changes to the treaty governing the European Stability Mechanism, unblocking a major reform of the European Union’s financial architecture, sources told MNI after a meeting between Finance Minister Giancarlo Giorgetti and Eurogroup president Paschal Donohoe.

Giorgetti told Donohoe during the meeting on Monday that Rome is prepared to end the stalemate, with Italy the only eurozone country still to ratify the treaty changes, though he highlighted the political challenges to doing so, two sources close to the officials told MNI.

While as recently as last month Giorgetti had insisted that he wanted to talk to ESM director Pierre Gramegna about overhauling an institution which Italy regards as imposing excessively harsh conditions on creditors, he is now prepared to seek its approval first and push for further reform later, an Italian source said.

“We are focused on making people understand that ratification does not imply its use. This government will never use it,” the Italian source said.

Italian ratification of the treaty change would help clear the way for the ESM to start a borrowing drive to fund a backstop for the EU’s Single Resolution Fund.

FUTURE CHANGES

A source close to the EU delegation to Rome confirmed that Italy, which is using EU funds for its EUR200 billion post-Covid National Recovery Plan, wanted to keep the possibility of rethinking the ESM’s role alive.

“At the same time they are conscious that agreements should be implemented,”, the source said, “I think the downside outweighs the positive for them”, he added.

Italy says it wants ESM use to be without stigma, but the Eurogroup source said it appeared that Rome wanted the facility to provide funds to support public investments with limited conditionality, along the lines of the NextGenerationEU programme.

In return for ratification, Rome would like a public commitment to allow future changes, which it could present as a concession to its supporters in parliament, sources said. But the EU side insisted that any future modifications to the ESM could only be discussed after ratification of the existing set of treaty changes,

“The key to further debate is ESM ratification,” the EU source said.

Italy will probably seek a public meeting between Gramegna and Giorgetti, or with Prime Minister Giorgia Meloni prior to ratification, the Italian source said.

“Then there are various formulas for us to ratify the ESM. Parliament could approve a ratification tied to a commitment to future reforms,” he said.

While previous Italian governments have also kept the ESM at arm’s length, the country’s current right-wing coalition government regards it as a “failed institution”, which imposes harsh conditions on accessing funds and whose use would deprive national governments of control of their own budgets.