Mes, EU pressure on Italy for ratification is growing

Minister Giorgetti is in contact with the president of the Eurogroup Donohoe and with the director of the Mes Gramegna, in search of a solution

Pressure is growing on Italy to ratify the reform of the European Stability Mechanism, the last step that would allow the entry into force of the treaty that would expand the firepower of the Single Resolution Fund, making the euro area less fragile in the face of a possible large-scale banking crisis. “We fully respect – Eurogroup President Paschal Donohoe reiterated yesterday – the fact that individual countries may decide not to make use of the additional capacity of the Single Resolution Fund” which would be ensured by the reform of the European Stability Mechanism, but the reform concerns ” the strengthening of the safety nets” in the euro area economy “also for other governments”.

Therefore, he added “it is in this spirit that we will continue to interact with Minister Giancarlo Giorgetti. We are all aware of the fact that it is a very sensitive issue in the Italian Parliament and we will continue to work with him“. The director of the Mes, Pierre Gramegna, referred to a report by the Single Resolution Board, in which he recalled that the amount of resources currently available for the Single Resolution Fund, “77 billion euros, is probably not enough ” to face an extended banking crisis and it is therefore “useful to have a backstop”, i.e. a payer or guarantor of last resort. The backstop that would be introduced by the Mes reform “could double this firepower”.

According to what is learned in Brussels, Euro area partners expect Italy’s ratification today from Economy Minister Giancarlo Giorgettibecause everyone is aware of the political difficulties, but at least the indication of a clear path, with concrete elements, to get there. Giorgetti, Mef sources said, recalled yesterday that the Italian Parliament is against the ratification of the reform, adding however that he is in contact with the president of the Eurogroup, Paschal Donohoe, and with the director of the Mes, Pierre Gramegna, at the search for a solution.

The attempt to exchange the ratification of the reform with counterparts on other dossiers, such as the banking union, is considered futile, because the negotiations on the reform of the Mes have been closed for some time. Minister Giorgetti, who also has excellent relations with fellow ministers, was told this by more than one interlocutor. By insisting, it is learned, one would run the risk of being considered unreliable and of being marginalized in the Eurogroup.

An answer to the problems posed by Italy could come from the exploration of new roles for the Mes: to date, there are hundreds of billions of euro unused in the Mechanism. And the starting point of a discussion could be how to put these resources to better use. However, the start of this process, which is not easy anyway because some countries see the Mes as a fund that comes into operation only in the event of an emergency, is subject to the ratification of the reform.

No one in Brussels, however, blames the current economy minister for the deadlock, which indeed, it is recognized, is working hard to find a solution. Everyone knows that he is not responsible, but on the other hand he is the interlocutor in the Eurogroup who represents Italy, so it is on him that the pressures of the partners are unloaded. In Brussels, the hope is that the government will be able to implement a convincing narrative so now spaces have opened up for Italy at EU level to have improvements on other dossiers, in order to make the ratification of a reform that still encounters strong resistance politically more ‘digestible’ to the majority.

There is, however, also the awareness that it may not be enough, because on this dossier the government would have a political problem, if, hypothetically, the ratification were to pass in Parliament with the votes of a part of the opposition. In Brussels it is well understood that the government intends to bring ratification to Parliament only in the face of the certainty of having the necessary majority to approve it with its own votes, without any external assistance. It also needs to be verified how firm would be, in the end, the determination of the chancelleries of the euro area to make Rome ‘pay’ for any failure to ratify, extending the ‘reprisals’ to other tables of interest to Italy.

Not everyone is convinced that, in the current geopolitical context, Rome would be severely punished. However the pressure at EU level, from Brussels and not from the capitals, has become pounding from being cautious. And he shows no signs of abating, quite the contrary. Certainly Giorgetti, who is an experienced politician, has no intention of risking the survival of the government to ratify the reform of the Mes. The problem, entirely political, of the reform of the European Stability Mechanism, which began with the Conte bis government and then remained unresolved also with the Draghi government (some in Brussels believe that he has missed the opportunity to take advantage of the first few months of his ‘honeymoon’ with the country, even though both the Lega and the M5S were fiercely opposed to ratification, as was Fdi, which was in opposition ), it could therefore still remain unresolved, in the absence of relevant news.

This is despite the deadline of the end of 2023, recently reaffirmed by the president of the Eurogroup Paschal Donohoe. And despite the fact that the backstop function for the Single Resolution Fund was strongly desired, at the time, precisely by Italy, against the will of Germany and the Frugals. With the paradox that today ‘like-minded’ countries on economic issues, such as Spain, see Rome’s failure to ratify the reform as a sort of ‘betrayal’ of traditionally pro-EU integration and pro-Banking Union positions that Italy has always supported. It is no coincidence that Spanish Economy Minister Nadia Calvino was among those who said on the record that they expect Italy to proceed with the ratification. Just Calvino yesterday had a bilateral agreement with Giorgetti. And the Mes was also on the table.