Conte Softens Italy’s Red Lines Over European Virus Aid Plan

(Bloomberg) --

Just two days before a crucial European Union summit, Italian Prime Minister Giuseppe Conte signaled a more conciliatory approach to the EU’s efforts to craft a trillion-euro rescue package that would mitigate the economic impact of the pandemic.

Speaking in Rome to senators in protective masks and gloves, Conte welcomed an initiative by European Commission President Ursula von der Leyen to boost the joint EU budget, saying it “could have all the characteristics” that Italy demands.

Europe is struggling to piece together a rescue plan to avert what’s projected to be its steepest recession in living memory. Conte, who has been under pressure from populists both within and outside his fragile coalition, said that any EU recovery fund must be much larger than what previously had been considered, available immediately and come with no strings attached.

Conte Softens Italy’s Red Lines Over European Virus Aid Plan

“The European Union and the euro zone cannot allow themselves to repeat the mistakes made in the 2008 financial crisis,” Conte said. “The common shock was not tackled in a coordinated or supportive way.”

Rescue Proposal

The plan being prepared would see the commission use its budget to borrow from financial markets and then channel cheap loans to the worst-hit nations, according to two diplomats briefed on the ongoing preparations.

The commission plan largely shuns demands made by Italy and Spain to finance the recovery with joint debt issuance, a controversial proposal rejected by Germany and the Netherlands. The bulk of the leverage created in the so-called recovery instrument of the new EU budget would take place over the next two years and the loans would be repaid after 2027, according to one of the diplomats.

Italy’s own counterproposal also backtracks from earlier demands from Eurobonds. According to Ansa, it envisages a fund managed by the Commission that raises money in the market with the backing of the EU budget and of member states. The funds would then be used to lend to individual countries with long maturities.

Conte also backtracked on an earlier rejection of a proposal to use the European Stability Mechanism, the euro area’s bailout fund, to open credit lines for countries in need. “We are ready to work on this new credit line, so that no conditionalities are introduced,” the prime minister said.

Several EU countries had shown interest in the credit lines without conditions, Conte said. “Rejecting this new credit line means doing a disservice to these countries which flank us in the battle,” Conte said. It is too early to tell whether the credit lines will be without conditions, he added.

“I will not be able to accept watered-down compromises, there will not be some winners or losers,” Conte said. “Either we all win or we all lose.”

Wave of Anger

Conte’s conciliatory new path comes amid a wave of anger in Italy directed at the EU, which many perceive as having done too little when the pandemic hit. In one survey, most Italians described China as a friend and almost half said Germany was the enemy.

Earlier Tuesday, Ralph Brinkhaus, the head of Chancellor Angela Merkel’s parliamentary caucus, pushed back against portrayals of Germany as failing to demonstrate adequate solidarity over the outbreak.

Conte Softens Italy’s Red Lines Over European Virus Aid Plan

“I personally am a little bit sad that the large degree of solidarity that we are showing on European issues is constantly being questioned,” Brinkhaus told reporters. “It seems, partly also here in Germany, that the only good European is the one who supports joint debt. That is not our position.”

“We are not only the biggest net contributor in the European Union but we are also assuming the main burden of the rescue packages for the euro, and we are carrying the main burden of immigration,” Brinkhaus added.

Italy’s anti-establishment Five Star Movement, the biggest force in Conte’s coalition, has long campaigned against ESM credit lines as requiring unacceptable loan conditions.

Opposition leader Matteo Salvini of the anti-migrant League, who has criticized the EU for failing to step up for Italy, also has denounced the ESM.

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