Top officials have warned that Italy's refusal to ratify the European Stability Mechanism (ESM) bailout fund weakens the bloc's defences against potential future banking crises.
“If the ESM treaty is not ratified it means that the ESM would not be able to play as active a role as it could,” which would be a problem “in case of a banking difficulty,” Paschal Donohoe said this week, who heads up the meetings of euro-area finance chiefs. “It’s a risk that gets bigger if the treaty isn’t modified.”
Lawmakers from Italian Prime Minister Giorgia Meloni’s far-right Brothers of Italy party, along with the coalition partner the League, have previously opposed ratifying the reform of the European Stability Mechanism, a politically sensitive issue in Italy for years. The reform has already been approved by the other 19 eurozone countries, Bloomberg reports.
“We understand the political challenge that is there but the risks are real,” Donohoe went on to add.
His remarks were echoed by ESM Chief Pierre Gramegna, who noted that he had held discussions on the issue with Italian Finance Minister Giancarlo Giorgetti.
“The Single Resolution Fund has accumulated €80 billion and we at the ESM have earmarked €68 billion for the backstop, for the additional safety net, so these €68 billion could not be mobilised if Italy doesn’t ratify,” he said.
Established in 2012, the fund was designed to support eurozone economies in return for stringent reforms.
Although Meloni has previously stated that Italy will never use it, European partners have urged her to approve the backstop so other countries can access it if necessary.
However, successive Italian governments have failed to ratify the ESM reform, with critics contending that utilising the fund could heighten the risk of restructuring the country’s massive public debt.