Italy’s Messy Coalition Could Delay EU Bailout Fund Reform

(Bloomberg) --

Italy’s fractious government may try to delay an agreed-upon plan to overhaul Europe’s bailout fund, throwing efforts to shore up the institutional set-up of the euro area into disarray.

Prime Minister Giuseppe Conte, under pressure from one of his government’s coalition partners, the Five Star Movement, may ask European Union leaders to postpone a final sign-off on the reform at a December 12-13 summit, according to an official familiar with the matter.

Conte will link his eventual approval to progress on other issues, such as joint insurance for bank deposits and a common budget, the official said, asking not to be named discussing confidential deliberations.

Euro-area finance ministers signed off on a legal text outlining changes to the European Stability Mechanism, the bloc’s bailout fund, in June. The reforms give the ESM broader powers, including allowing it to serve as the lifeline for the currency bloc’s crisis fund for failing banks. The proposed changes have to be approved unanimously by EU member states.

ESM reform has become a hot-button issue in Italy in recent days, shaking a fragile majority already wracked by infighting on the budget, immigration and taxes.

ECB’s Visco

Ignazio Visco, a member of the governing council of the European Central Bank, is not against reform of the ESM, according to a Bank of Italy official who declined to be named. Visco, who is also governor of the Bank of Italy, has warned against the risks of taking other initiatives linked to the ESM without a broader reform of euro-area economic governance.

Finance Minister Roberto Gualtieri acknowledged that there is a lot of confusion in Italy about the reform process. In a statement late Wednesday, he wrote that it does not introduce the requirement for a preventive debt restructuring.

Opposition leader Matteo Salvini has charged that Italy would effectively renounce its sovereignty if the ESM changes are approved. He’s found support from his one-time allies, Five Star, who ditched Salvini over the summer to form a more pro-EU government along with the Democratic Party.

Five Star leader Luigi Di Maio has called for a meeting of coalition leaders, which is expected to take place Friday morning.

“We’ve been used to seeing blows below the belt in the past, and we have no intention of continuing to be subjected to them,” Di Maio told newspaper Corriere della Sera on Wednesday. Finance Minister Roberto Gualtieri is said to be preparing to report to parliament on the issue Nov. 27.

While it’s not entirely clear what part of the reform Italian politicians are objecting to, the country has long demanded that ESM changes come as part of a “package” of other euro-area reforms. Gualtieri’s predecessor, Giovanni Tria, signed off on the reforms on behalf on Conte’s previous administration.

The debate on euro-area deposit insurance, long stalled by German opposition, was rekindled by Finance Minister Olaf Scholz earlier this month. Italian officials have cautiously welcomed the initiative but warned that one of its key provisions, aimed at limiting banks’ exposure to domestic sovereign debt, is a non-starter for the country.

--With assistance from Viktoria Dendrinou and Vernon Silver.

To contact the reporters on this story: John Follain in Rome at jfollain2@bloomberg.net;Alessandro Speciale in Rome at aspeciale@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, Jerrold Colten, Chiara Albanese

©2019 Bloomberg L.P.