After so much tension in the majority, the Italian Parliament approved on Wednesday the proposal to reform the European Stability Mechanism (MES), i.e. the State-saving Fund. Practice archived? Not exactly. In reality, the House and the Senate have not yet given the definitive green light to the new Mes: this step will be taken in the coming months, when - in the event of the green light from the European institutions - the national parliaments will be called to the final deliberation. With Wednesday's vote, Montecitorio and Palazzo Madama approved only the communications of the Prime Minister, Giuseppe Conte, who explained why at the European summit which opens on December 10 (and which will also address other decisive issues such as the Recovery Fund and Brexit), the Italian government will express itself in favor of the reform of the Mes. However, it was a crucial political step, because the change of the State bailout fund had been blocked for over a year at a continental level precisely because of Italy, which avoided addressing the issue for a long time so as not to alter the balance in Movement 5 Stars, always hostile to this instrument.
But what exactly does the reform of the Mes envisage? First, let's clear up misconception number one: the provision has nothing to do with the so-called "health mes", launched last spring as an anti-pandemic measure and which could guarantee loans to Italian healthcare for about 36 billion euros on favorable terms.
The reform of the Mes concerns two other aspects: the banking "backstop" and new conditions for accessing loans from the Fund.
“BACKSTOP”: THE MONTH AND THE BANKS
On the first front, the novelty is that the Mes will be able to transfer money to Single Resolution Fund in the event that this has to intervene but no longer has the resources to do so. This is a rather remote eventuality: the assumption is that a systemic bank for the Eurozone (and therefore supervised by the ECB) goes into crisis, that the bail-in has already been activated (a mechanism which implies losses for shareholders, bondholders and ultimately also for account holders of the institute) and that the Resolution Fund has already intervened until it is empty. Only in that case could the Mes intervene, which would therefore function as a parachute for the parachute.
Several members of the opposition argue that these changes to the functioning of the Mes were designed to save unspecified "German and French banks". In reality, it was the Italian government that insisted more than any other on the inclusion of the "backstop" in the reform: with the new wave of non-performing loans arriving due to the pandemic, our country has every interest in strengthening the the European credit protection network as much as possible. Not so much for the existence of a real systemic risk, but to increase confidence in the resilience of banks.
LOANS TO STATES
As regards the original function of the Mes, to provide loans to states in crisis, the reform provides that individual countries can activate credit lines without conditionality. To be entitled to this privilege, however, they will have to respect the Maastricht parameters, i.e. limit the deficit-GDP ratio to within 3% and have a public debt of less than 60% of GDP, or reduce the imbalance by cutting one twentieth of the of debt exceeding 60%.
At the moment, no country respects these conditions, because the pandemic has forced the suspension of the Stability Pact in order to push the deficit pedal. In the medium to long term, however, the countries of Northern Europe will fall within the ranks, while the same cannot be said of Italy. With a public debt that has shot up to over 160% of GDP, our country will never be able to dream of accessing the Mes without conditions. So what will change compared to the past? In fact, absolutely nothing. If ever we were forced to ask for help from the State Savings Fund, to get it we would have to sign an agreement with Europe, committing ourselves to settling the accounts with painful austerity manoeuvres. In short, dear old Mes. As it always has been.
