MNI EXCLUSIVE: EU Renews Push For Banking Union, ESM Backstop

Eurogroup finance ministers are making a renewed bid to win Italian approval of an overhaul of the European Stability Mechanism, necessary to provide a EUR55 billion backstop for the Single Resolution Fund at the heart of plans for eurozone Banking Union, officials told MNI.

"Covid underlines the need for Banking Union," a senior EU official said. "The fallout is so deep that the recovery needs all the help it can have. Banking Union ensures the reliable supply of funds to the private sector and is actually a very crucial part of the recovery – that is where the urgency comes from."

While the Italian government officially supports ESM reform, in order to come into effect it must be ratified by Italy's parliament, where, so far, the path to its approval has been blocked by outspoken opposition by legislators from the populist Five-Star Movement. Parliamentarians say the proposed reform could subject countries turning to the ESM to harsh restructurings. Five Star, part of the governing coalition, also opposes any use of ESM funds under Europe's Covid recovery plans.

"Without the backstop the whole resolution fund lacks credibility," said a European official familiar with the matter.

Eurozone finance ministers will discuss ways to help turn around Italian public opinion and clear up what they regard as misunderstandings, the senior official said.

"It is a more serious economic situation than we thought it would be at the beginning of the year," the official said. The Eurogroup and institutions are ready to help in any possible way that could help Italy get the deal through, a third EU source said.

Italian Finance Minister Roberto Gualtieri told a Senate hearing in November that the ESM backstop would be a "success for Italy".

DESPAIR

But some EU sources are quietly despairing of the internal Italian debate on the role of the ESM, which they view as increasingly irrational and disconnected from reality, with one remarking that the matter must be resolved internally in Italy.

"There remains one country with significant political difficulties with this…all other member states are increasingly anxious to move ahead," another source said.

"All member states committed to having 2024 as the latest date to have the backstop in place – so ratifying the revised ESM Treaty and revised intergovernmental treaty on the SRF is not only urgent for the early introduction of the ESM backstop but it is also necessary for backstop to become reality at any time," the source said.

The new sense of urgency partly stems from "frustration" over the lack of progress on Banking Union, which Irish Finance Minister Paschal Donohoe, the recently selected head of Eurogroup, is making a "very strong priority," the source said.

--Additional reporting by Giada Zampano in Rome