Via Financial Times

Italy’s finance minister triggered a political storm on Friday as he signed up to a eurozone rescue deal that involves the region’s European Stability Mechanism bailout fund, a politically toxic prospect in Rome. 

Roberto Gualtieri was among the ministers who signed up to a €500bn economic package late on Thursday night in a deal that was hailed as a major breakthrough in the battle against the economic pain wrought by the coronavirus-related lockdowns. 

But he and Prime Minister Giuseppe Conte faced an immediate backlash as details of the arrangement emerged. Italy did not win any explicit reference to the concept of “coronabonds” — jointly issued debt underwritten by eurozone member states — yet at the same time it agreed to a package that contains a role for the ESM, which is viewed with deep suspicion in Rome. 

Mr Gualtieri’s compromise was heavily criticised by not only the opposition League party of Matteo Salvini, which denounced the minister as a “traitor” and called for a vote of no confidence, but also the Five Star Movement, which shares power with the centre-left Democratic party that the Italian finance minister belongs to. 

“We do not accept the ESM now and won’t accept it in the future . . . it is an unsuitable tool to face this crisis and is very dangerous,” Vito Crimi, the political leader of Five Star, said in an interview with Italy’s state-owned Radio 1.

Thursday’s breakthrough on immediate economic measures supporting businesses, workers and sovereigns was achieved after the Dutch government backed away from previous demands that ESM lending be made subject to tougher macroeconomic conditions. 

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The core elements of the package are revised pandemic credit lines from the ESM that will be available within two weeks, a boost to the lending capacity of the European Investment Bank and a new €100bn unemployment insurance scheme proposed by the European Commission.

Ministers also agreed on setting up a “temporary, targeted” recovery fund to help trigger a post-lockdown economic rebound, but they have yet to settle key questions on the size and sources of funding for the tool, or indeed when it will be set up. 

The very inclusion of the ESM remains politically dangerous in Italy; Eurosceptic parties have long claimed the fund would impose draconian conditions in return for any lending to embattled sovereigns. Reacting to the deal, Mr Salvini in a tweet: “I’m horrified and I will ask for the resignation of an economy minister who has sold off our country.”

For his part, Mr Gualtieri expressed satisfaction for the result Italy obtained after it “fought a tough battle”, saying the criticisms of the deal were “ridiculous”. The deal meant that conditionality for the use of ESM financing was “off the table”, he argued. What is more, Italy had not given up on the idea of eurobonds. 

Bruno Le Maire, the French finance minister, told the Financial Times that it was entirely up to Italy whether to use the ESM.

Italy, he argued, had obtained something that was absolutely critical: there was no macroeconomic conditionality on the ESM credit lines. “This is a huge progress. This is a very important victory for Italy,” he said in a telephone interview on Friday.

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It is far from clear that Italy will want to tap the ESM given the political hazards associated with the Luxembourg-based entity. The eurogroup also left open a major debate to come on the degree of economic burden sharing that will be needed to kick-start economic activity after the lockdowns are over.

While Italy has been among the countries championing the idea of joint debt issuance under the banner of coronabonds, northern states including Germany and the Netherlands have rebuffed the concept. The text of Thursday’s deal says a new recovery fund to support the eventual economic reconstruction will be “commensurate with the extraordinary costs of the current crisis and help spread them over time through appropriate financing”. 

But officials admitted that the wording papers over profound divisions on how large the fund needs to be, how urgently it needs to be set up and how the costs will be shared between fiscally stronger and weaker capitals.

The “conceptual frameworks” for the fund differ significantly among member states, said one EU diplomat on Friday. “The debate on debt mutualisation has once again proven to be very divisive and needs to be put into the freezer. It would only distract from the real issue at hand: the kick-start of the European economy after the crisis.”

Mr Le Maire said he hoped agreement could be found for the recovery fund to be based on future common debt issuance for a limited period of time. 

EU leaders will meet to discuss the finance ministers’ proposals on April 23, and one of the key questions will be how to move forward with the recovery fund — including how and whether to integrate it into currently stalled talks over the next seven-year EU budget. 

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Lucas Guttenberg, deputy director of the Jacques Delors Centre in Berlin, said the very inclusion of the concept of a recovery fund in Thursday’s package was progress, because it reflected a recognition that the existing tools to battle the economic slump were not going to be enough on their own.

It was now for EU leaders to decide how to push this debate forward at their next summit, he said. “There has to be a clear decision about whether this has a meaningful size or not.”

Additional reporting by Daniel Dombey in Madrid, Victor Mallet in Paris and Guy Chazan in Berlin