Il International Monetary Fund stings Italy over the ratification of the European Stability Mechanism treaty. In the final declaration of the 2024 mission on the Eurozone countries, the IMF defined the ratification of the ESM “a priority”.
"A integrated capital market would benefit from strengthening ESMA's capacity to coordinate between national authorities and from greater harmonization of supervision" and "from ambitious initiatives by Member States to promote the convergence of financial markets. Including those aimed at strengthening crisis management tools and introducing European deposit insurance – and it should be given priority to the ratification of the ESM treaty to make the backstop for the Single Resolution Fund operational” explained the IMF.
According to the director of the IMF, Kristalina Georgieva, is it is preferable for Europe to have the ESM as a precautionary measure during risky times, comparing it to a insurance policy: “When you have insurance and live in risky times it is better to use it. The ESM is a good insurance policy for Europe. In this sense, it would be wise to have him available if there were to be another shock." Georgieva, however, clarified that her speech referred to the ESM in general and not specifically to the backstop, one of the key components of the still pending reform.
Giorgetti's reply: “Prejudices towards Italy”
From the EU, meanwhile, six months after the rejection in the Chamber and after the European elections, the 19 euro area ministers once again asked the Minister of Economy, Giancarlo Giorgetti, Such as'Italy intends to proceed to the ratification of the ESM reform. The treaty, negotiated and signed by Italy, was blocked in Parliament immediately after the approval of the reform of the stability pact. Since January 2021, all member states of the European Union have approved the change to the "state-saving" fund with the exception of Italy.
At the ESM Board of Governors in Luxembourg, on the occasion of the Eurogroup, Giorgetti would have denounced the recent treatment reserved for Italy, which, despite being a founding country of the EU, has been excluded from crucial decisions regarding the future of the Union. The economy minister criticized what he called a “conventio ad excludendum” and a “prejudicial attitude” towards Italy. Giorgetti recognized the quality of the report by Pierre Gramegna, Director of the ESM and welcomed the opening to new horizons for the Mechanism, but underlined that currently there is no parliamentary majority in Italy in favor of ratifying the treaty.
Eurogroup President: "I respect different points of view but ESM is a priority"
The president of the Eurogroup, Paschal Donohoe, expressed "respect for the different points of view on the ESM" but "the ratification of the treaty by all is an important priority". For Donohoe, failure to ratify by a country represents "a collective loss" and reiterated that other countries "may want to join". And on Giorgetti: "I have an excellent relationship with the minister".
The IMF report on Eurozone countries
The IMF report on Eurozone countries reported that “for 2024 it is a modest recovery in growth is expected, which will strengthen further in 2025, but the medium-term outlook remains difficult” due to various structural factors.
Recovery in consumption
“In 2024, rising real wages and a reduction in household savings are expected to support a recovery driven by consumption. In 2025, the easing of financing conditions should favor the recovery of investments, while the increase in employment and nominal wages will continue to support consumption”.
Growth slowed down by the aging population
In the medium term, growth will likely be “curbed bypopulation ageing and low productivity growth." L'inflation it is expected to “return to target in the second half of 2025.” However, the risks to growth “are predominantly to the downside”, while those to inflation are two-sided. Past monetary policy tightening could dampen production more than expected. Additional risks include geopolitical tensions, weakening global demand and a possible cooling of labor markets, which could negatively impact consumer sentiment and inflation.
Economic and climate policies
The IMF emphasizes that policies must integrate the EU climate objectives, requiring significant public and private investments. Reducing dependence on fossil fuels and increasing energy efficiency can “strengthen competitiveness of Europe in the medium term”, although “adjustment costs” could represent an obstacle in the short term. Green industrial policies should avoid fueling a costly subsidy race, and the Carbon Offsetting Mechanism (CBAM) must ensure low administrative costs and compliance with WTO rules.
The new economic governance framework of the EU will require significant fiscal adjustments in many member states”, together with continued political support. This framework aims to “identify risks to long-term fiscal sustainability” and provides country-specific adjustments. For countries with high debt and deficits, significant fiscal adjustments will be needed, while those with moderate or low fiscal risks will have more room for fiscal support if needed.
The fiscal-structural plans
"medium-term fiscal-structural plans“, concludes the Fund, scheduled for September 2024, should “be supported by a clear fiscal strategy, structural reforms and high-quality measures”. L'fiscal adjustment required by the new tax rules is “appropriate and should be implemented as intended.” In high-debt countries, an immediate fiscal adjustment, beyond the linear annual path, could demonstrate “resolve, support market confidence and create margins for future unexpected spending.” Even with low credit growth, the authorities should encourage “the banks to use high profits to strengthen safeguards, including increasing countercyclical capital buffer requirements.”
