MNI SOURCE: Breakthrough Seen On ESM Reform at 30 Nov. Meeting

A compromise is being crafted which should bridge a north-south stand-off between member states which is blocking reform of the EU bail-out fund, improving the prospects of a breakthrough at the Nov. 30 meeting of euro zone finance ministers, a well-placed EU official has disclosed to MNI.

The official now sees a "high likelihood" of a deal to reform the European Stability Mechanism (ESM) on the basis that countries such as Italy with high non-performing loan (npl) ratios will accept pressure from the Nordics and other member states to implement further risk reduction measures.

In return, the additional prudential requirements would not be applied to Covid-era npls, which would be ringfenced to separate them from the pre-Covid 'legacy assets' that would fall under the tighter measures.

That should enable Italy to claim it has won a victory of sorts, according to the EU official who spoke to MNI, which would also allow Rome to benefit from an advanced start to the ESM backstop for the Single Resolution Fund - by early 2022 instead of two years later.

"We're confident that this will be enough Italy to be able to say, we have won something," the source maintained.

Another EU official recently told MNI that the end-Nov. Eurogroup gathering was the last chance to achieve "a meaningful early introduction" of the backstop.

Eurogroup President and Irish Finance Minister Paschal Donohoe has made Banking Union and ESM reform a top priority.