After the German ratification, which arrived on Saturday once the green light from the German Constitutional Court, Italy remains the only country not to have ratified the ESM reform approved by the ECOFIN Council in 2020. The MONTH, or European Stability Mechanism, was established in the 2012 with an intergovernmental agreement between the countries participating in the euro to provide the euro area with an intervention mechanism in support of member states affected by financial instability capable of endangering membership of the euro or the very survival of the single currency. ESM financial assistance was successfully activated to bail out Greece from default and to restore financial equilibrium Ireland and Portugal – at no cost to the countries participating in its capital – thwarting the potential contagion crisis of the entire euro area.
The Mes and Greece: why it has aroused hostility
However, the harshness of the conditions imposed on the Greece and most importantly, the fact that the incumbent Greek government was forced to gobble up a strict stabilization programme in complete contrast with the political commitments assumed in the electoral campaign that had ensured the election, made the ESM the bete noire of the most indebted countries and also of the European Parliament. Such hostility emerged in a macroscopic way during the pandemic crisis, when member states refused to use the new credit line set up to help member states pay for healthcare costs, which required no other condition than to be spent to support higher healthcare costs related to the pandemic. The Italy's refusal to ratify the reform of the Treaty establishing the ESM seems to be the result of the same feeling of rejection towards the common European policies for the stabilization of excessive public debts.
What is the Mes and what the reform foresees
So what does the reform of the ESM envisage? Essentially three things. The first is the introduction of the possibility for the ESM to finance the Single bank resolution fund, up to a maximum of 68 billion euros, with a three-year credit line (extendable up to 5 years) to be repaid through compulsory contributions imposed on the banks.
The second is a strengthening of the criteria for financial assistance, on the one hand made more flexible, but on the other subject to the condition of public debt sustainability. This is the most problematic aspect, given that, by fueling investors' fears, it can itself become a source of instability. Finally, one is introduced new precautionary credit line, with 'light' conditionality, which allows action to prevent instability and can be granted without the need for a full macroeconomic programme.
Blocking the reform of the Mes: Italy risks isolation
The question that now arises spontaneously is whether it is a good idea to block the reform of the ESM - something that Italy can at least temporarily do by blocking the ratification of the revision of the founding treaty - with the effect of leaving the founding treaty as it is, thus giving up some certain improvements. It should be noted, in this regard, that the problem of public debt sustainability would perhaps go out the door to return through the window, given that the question will inevitably also be included in the reform of the Stability and Growth Pact. More importantly, failure to ratify would constitute, or in any case be perceived as, a rejection of common policies to defend the euro. Not exactly a good encouragement for the new government's objectives of European respectability.
