MNI SOURCES: Italy Will Resist Pressure To Enter ESM Programme

By Silvia Marchetti and David Thomas

     ROME/BRUSSELS(MNI) - Italy's government will resist any pressures for it to

accept a programme with the eurozone's bailout fund in order to allow the ECB to

support its bonds with secondary market purchases, sources in the ruling

coalition told MNI.

     The EU must instead immediately buy bonds without limit, free of

conditionality, and eurozone fiscal rules should be suspended to enable Italy's

economy and financial system to cope with a pandemic that hit the peninsula

earlier and harder than any other western country, the sources said.

     "Italy has not and will not be asking for access to the European Stability

Mechanism nor for ECB outright monetary transactions, which are strictly linked.

According to existing rules --- in order to apply for OMT a country must already

be under "the hat" of the ESM therefore it must already follow certain strict

fiscal rules," a source in the 5-Star Movement, dominant party in the ruling

coalition, told MNI.

     "We have a feeling someone is trying to force Italy to ask for ESM-OMT -

laying a trap to trigger a Greek-style restructuring plan so to supervise over

us for the next 10 years or so. Some other big country, that's all I say," the

source complained.

     --RISE IN SPREADS

     "The Stability and Growth Pact must be at once suspended. Also, the ECB

must free QE from all limitations and buy as many bonds as needed on the

secondary market. Italy is slightly above 20%, while Germany is at 33% and

therefore has some kind of interest to stop raising issuer limits," the source

continued, referring to the percentage of the countries' bonds held by the

central bank.

     "Issuer limits must be raised to 50%. This would stop the spread rise."

     The 5-Star source made it clear that launching any OMT procedure, the 'do

whatever it takes' backstop unveiled in dramatic fashion under Mario Draghi's

ECB premiership in 2012, was a sovereign step for a eurozone member to take and

not at the initiative of an EU institution: "the request - first for the ESM and

then the OMT - cannot be triggered overnight by any EU body. The request must

come from the government and needs to be approved with a majority by the Italian

parliament."

     --OMT RUMOURS

     A source in the Democratic Party, the other major coalition member, took a

more sanguine view of relations between Rome and Brussels, but the message was

just as uncompromising -- that Italy is not planning to press the ESM-OMT

emergency button.

     "The Eurogroup probably did discuss about the current ESM and how to use it

in case of need being one available tool for crises, as per the Eurogroup agenda

and the final communique by [Eurogroup Chair Mario] Centeno, but it was just an

ordinary discussion as all the other secondary issues we faced after the virus

emergency," according to this source.

     "Nobody ever asked to activate it. Certainly not Italy, nor any other EU

country as far as I know. Any other buzz/rumour circulating which states the

opposite is totally false."

     Other Italian government sources told MNI that the ECB can stick to

announcing the potential of OMT availability for countries in need while making

it plain that the backstop would only come into play if such countries were to

ask for ESM funds or are already benefitting from ESM funds.

     --BACK-SEAT EUROGROUP

     An ECB source told MNI he was aware of Italy's objections to the ESM and,

by extension, OMT, acknowledging that it was an issue for member states and the

ESM itself.

     A Eurogroup source told MNI earlier today that there was a mandate look at

ways to involve the ESM in tackling market difficulties and that 'all options

[are] on table' in answer to a question about possible credit lines.

     Another source close to Eurogroup was, however, sceptical of the idea of

the ESM doing more and, in his view, only the ECB could help if crisis

conditions continued to deteriorate.

     The Eurogroup's next scheduled meeting will not be until Thursday or Friday

next week - although they could have an emergency call at any time. A source

suggested another option could be an EIB coronavirus bond but consensus would

still not be easy to achieve, he said.

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

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