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MNI SOURCES: Italy Coalition Members See ECB OMT A Last Resort

By Silvia Marchetti
     ROME (MNI) - Sectors of Italy's governing coalition, trying to persuade
their political partners that the country should borrow from the eurozone
bailout fund, said last resort financial assistance could also come from the
European Central Bank's outright monetary transactions programme, which would
see the ECB buying potentially limitless quantities of shorter-term Italian debt
on secondary markets, sources told MNI on Thursday.
     The ECB could potentially activate OMT should other tools, including the
central bank's EUR750 billion Pandemic Emergency Purchasing Programme, prove
insufficient in supporting government finances, sources at the Democratic Party
and the small Italian Viva party said.
     In order to be eligible for OMT, Italy would first have to obtain a credit
line from the European Stability Mechanism. The Democrats are trying to win over
the populist Five-Star Movement to this idea, so long as the loans come with
only minimal conditions and a European Union summit next week agrees on progress
towards a Recovery Fund, potentially funded by joint European debt sales. ESM
money would help Italy to pay for its response to the coronavirus pandemic and
reduce its additional bond issuance needs, they argue.
     Italian Prime Minister Giuseppe Conte also opened the door to potential ESM
credit on Wednesday.
     "The ESM opens the doors to unlimited purchases of short-term bonds by the
ECB through the OMT program, this is very important," a Democrat official said.
"But first, let's take it one step at a time. First: the potential use of the
     An ESM loan would not "automatically translate into OMT activation", the
official said, noting that "the fact that the ECB's OMT is already there, on the
table, ready to be deployed in case of need, is alone reassuring for both
markets and Italy."
     A source in the smaller Italia Viva party, founded by former Prime Minister
Matteo Renzi agreed: "Potential activation of OMT would be as a vital safety net
in case of need and would contribute to further stabilise financial markets,"
the source said, stressing that its use would only be a measure of last resort.
"This is also why we can't afford to say no to ESM help."
     A source close to discussions among Eurozone finance ministers, however,
told MNI that an ESM loan by itself would make little difference to Italy's
financing needs, and that its main significance would be to pave the way for
     The outcome of next week's European Council meeting, at which EU leaders
are set to approve a package including EU unemployment insurance and reinforced
lending capability for the European Investment Bank will be crucial in
determining whether Italy turns to the ESM, the Democrat source insisted. But he
noted: "there's no stigma attached to OMT anymore. We're no longer in 2008, and
OMT could be activated for any or all European countries in need, not just for
     Borrowing from the ESM alone, together with other European funds already
due, could reduce Italy's additional bond issuance to cope with the coronavirus
crisis by at least EUR47 billion, sources told MNI on Wednesday.
     The Five-Star Movement, the biggest party in Italy's parliament and key to
the governing coalition, was once stalwart in its opposition to ESM funds, but
is now wavering, with some officials suggesting that condition-free loans might
be acceptable. Others remain adamantly against such a move.
     "If we ever turn to the ESM, that's the beginning of the end for Italy. OMT
would be the final blow," one Five-Star official said, "There is no such thing
as 'zero conditions'. Italy would turn into the new Greece."
--MNI London Bureau; +44 203 865 3829; email:
[TOPICS: MFIBU$,M$E$$$,M$I$$$,M$X$$$,MC$$$$,MT$$$$,MX$$$$]

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