MNI SOURCES: Move Within Italy Coalition To Take Cash From ESM

By Silvia Marchetti

     ROME(MNI) - The junior party in Italy's governing coalition is trying to

convince its populist partners to accept the possibility that the country could

take a loan from the eurozone bailout fund, potentially reducing its additional

bond issuance this year to cope with the economic blow from coronavirus,

coalition sources told MNI.

     But, while the centre-left Democratic Party has relented from its own

initial opposition to the use of European Stability Mechanism credit lines which

could bring to Italy roughly EUR36 billion, such a step would only come if next

week's European Union summit takes steps towards a recovery fund for as much as

EUR1.5 trillion, potentially financed by bonds backed by member state

guarantees.

     Progress on the EU-wide measures is crucial in determining Italy's

additional bond issuance target for 2020, a senior Democratic official told MNI.

     The Democrats had opposed the idea that Italy could resort to the ESM, but

would now be prepared to back such a move if credit lines used to fund the

public health response to the coronavirus crisis come free of any conditions.

Their partners in the Five-Star Movement are still against taking ESM money, but

officials said they might soften their stance if the European Union shows signs

of progress towards mutualised debt issuance, even if this is only a longer-term

prospect.

     --MONEY READY IMMEDIATELY

     "Rome will battle next week to make progress on a EUR1.5 trillion Recovery

Fund, supported by France and Spain, which could bring some EUR200 billion to

Italy. Our goal is to get a comprehensive package, so why give up on the ESM's

help? That would be blind", said the Democrat official, noting how the ESM

resources would be readily available while the fund might take time to set up.

     Progress on the fund might make it "easier to convince the Five-Stars to

adopt a softer approach towards the ESM," added another Dem source.

     Rome is also expected to receive some EUR11 billion of EU funds which were

previously blocked and would go into supporting regions in tackling the health

emergency. These, together with EUR36 billion from the ESM, would potentially

cut debt issuance by at least EUR47 billion, noted sources.

     Italy's next fiscal plan, which will form the basis of the country's 2021

budget law and was initially scheduled for mid-April, will be heavily influenced

by the outcome of the European Council meeting and now will not be approved

before the end of the month or early May, said sources.

     "It's really all a matter of how much money we secure at EU level to

lighten our future debt burden, so until we have a clear picture of the total

European resources and whether these come with conditions or not, there are no

grounds for a definite fiscal plan," said the Democratic official.

     The government has announced it will raise its debt issuance target for

this year, initially set at roughly EUR400 billion prior to the pandemic

outbreak, but the exact target is still to be defined, added the sources.

     The fiscal plan will also include additional government measures for at

least another EUR25 billion.

     Italia Viva, a minor coalition party founded by former premier Matteo

Renzi, also supports using ESM funds straightaway so long as they come with no

strings attached, said a party official. Premier Giuseppe Conte is therefore

working on a double front, attempting to find a middle way between the Democrats

and the Five-Star over the ESM at home, and trying to secure the most resources

for Italy at a European level.

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

[TOPICS: MFIBU$,M$E$$$,M$I$$$,M$X$$$,MC$$$$,MT$$$$,MX$$$$,M$$EC$,MFX$$$,MGX$$$]