The political controversies over the reform of the ESM, better known as the Salva-Stati fund, have involved public opinion to such an extent that the hashtag #StopMes has gone viral on social networks on more than one occasion. An unusual phenomenon given the topic, technical and economic, but also quite understandable, given the tendency of many politicians to use the anger of citizens as a weapon to carry on party battles.
But no one bothered to really explain what this Salva-Stati fund is, how it works, what repercussions it could have on Italy and what are the pros and cons of the reform that the European Union should approve unanimously – otherwise nothing will be done about it – on 13 December next, the day on which the summit between the heads of state and government is scheduled, the Italian Prime Minister, Giuseppe Conte, will also participate at present stuck between two fires. Few have tried to make people understand what are the reasons behind the political skirmishes within the majority, which have become yet another weapon in the hands of the opposition.
Let us therefore try to clarify the Mes.
STATE-SAVING FUND (MES): WHAT IT IS
Mes stands for European Stability Mechanism, in English Esm (you've probably heard him called that too). It was born in 2012 to overcome the EFSF Salva-Stati Fund, which was in turn created in 2010 to try to tackle the sovereign debt crisis and go to the rescue - as a lender of last resort - of the countries that, due to their shaky accounts, lose the possibility of financing on the market. In fact, over the years Greece, Spain, Portugal, Ireland and Cyprus have taken advantage of it, receiving a total of 254,5 billion in loans.
This fund has capital of around 700 billion euros at its disposal, making it the world's leading financial institution. But be careful, because in this area it is necessary to make a first clarification: this money, contrary to what some would have you believe, does not derive only from the contributions disbursed annually by the Member States - which indeed contributed only for 80 billion euros -, but they were raised by adding loans from previous funds and investments made on the market. For practically 88,6% of the total, this fund is self-financing.
How much money did Italy put in? In total 14 billion euros, a figure that makes our country the third largest shareholder in the fund (we are also the third largest economy in the Eurozone), preceded by France and Germany.
STATE-SAVING FUND (MES): HOW IT WORKS
The Mes is controlled directly by the finance ministers of the Eurogroup (therefore today also by Roberto Gualtieri). It establishes that the states that borrow money must respect conditions which often translate into an accounts adjustment program (rather harsh as the Greek experience clearly demonstrates) and an analysis of their public debt carried out by the now well-known Troika (EU Commission, IMF and ECB) which also performs control functions, but which with the reform will leave the scene to make room for solely European institutions. The countries that receive assistance from the Salva Stati Stati fund not only obtain an economic loan, but a whole series of stimuli that can help them recover: government bonds are bought on the primary and secondary market, precautionary credit lines are opened, yes participates in the indirect and indirect recapitalization of the banks most in difficulty to avoid the "too big to fail".
WHAT THE REFORM OF THE STATE-SAVING FUND (ESM) PROVIDES
A reform of the ESM is currently under discussion at the European level, which should enter into force on 1 January 2024. These changes have been under negotiation for almost a year, which ticks one of the weapons currently used by the League to attack the Government. If it is in fact true that Premier Conte and the Minister of Finance, Roberto Gualtieri, are dealing directly with the matter, it is equally true that the draft reform of the Mes was approved by the Eurogroup on 14 June, when the number one of via XX Settembre was Giovanni Tria and the government with the M5S was the League and not the Democratic Party. The Prime Minister also specified (rather harshly) that the Carroccio participated in 4 government tables in which this reform was discussed. Salvini replied that his party said it was against it.
The purpose of the new rules that the EU would like to introduce is to complete the banking union, after decades of struggles between the various states, and to strengthen the monetary union.
At the heart of the reform – and of the controversy – is the so-called backstop (which has nothing to do with the mechanism that has been blocking Brexit for three years, ed.), a function through which the Salva-Stati fund should become "the final parachute" of the banks. We translate: when a bank of a Member State is in crisis, to save itself it can count on the National Funds for bank resolutions which are financed through the resources of the banks themselves. In cases where the Resolution Fund engaged in the rescue does not have enough money to avoid the default of the institution, the money needed can be requested from the ESM, whose role will be strengthened, in order to avoid financial speculation that could exacerbate the crisis of the various institutes and their repercussions on the States. With the introduction of the backstop, the ESM will no longer be able to directly recapitalize banks in difficulty (something it has never done up to now, although it could), and changes will be envisaged to access precautionary credit lines: the States will have to sign a letter of intent which ensures compliance with the rules of the Stability Pact, which – let us remember – provides for a deficit-GDP ratio of less than 3% and a debt-GDP ratio of less than 60%.
The fund will also have the possibility of mediating between states and private investors in the event that public debt restructuring is needed. If a state's request for help arrives at the ESM, the fund can - it must not! – ask private individuals to participate in the bailout, which means restructuring the debt and determining deadweight losses for those holding the government bonds of the country in question. However, there is no obligation or automatism, an aspect that must be underlined by virtue of the ongoing controversies.
There are also - another important node - changes regarding the Collective Action Clauses (known as Cacs) in cases where it is necessary to proceed with the restructuring of a country's sovereign debt. The changes mean that, as early as 2022, a country's public debt securities will be subject to a single CAC and no longer double as today, it will therefore be easier to get the ok of the shareholders to restructure the sovereign debt.
SALVA STATES FUND (MES): WHAT'S AT THE BASIS OF THE CONTROVERSY
There are two parallel and linked controversies which however have the same basis: the public debt. The first, international, pits the countries of Northern Europe against those of the South. In essence, the Nordic states are reluctant to participate in a mechanism that allows them to lend money to less virtuous countries characterized by a high public debt (such as Italy), while those in the south want to avoid the recurrence of conditions that could lead them to finish " like Greece”, obtaining money in exchange for economic programs that have very harsh economic consequences for the population.
On the internal front, it is worrying precisely that our very high public debt could force, in case of need, Italy to forcefully cut its debt. Republic underlines however that “for Italy the question does not arise, because one of the clauses for accessing it (the ESM ed.) is not having excessive imbalances, and Italy has been under EU monitoring for years for its debt”. Not only that, the fear is that these rules will push international investors to stop buying BTPs in the face of the first uncertainty about the keeping of our accounts precisely out of fear that Italy could eventually undergo a restructuring of its sovereign debt. And given the ongoing internal political tensions, the chances that worries about the country's future will rekindle are by no means remote.
Due to internal tensions in the Government, another controversy relating to the consequences of the possible step backwards or theany request for postponement of our country on the signing of the reform. As mentioned, the changes will pass only if voted unanimously and therefore Italy's Yes is decisive. In recent months, among other things, it was Italy, together with Spain and France, who supported the reform of the ESM - including the backstop - by asking and obtaining that the debt restructuring was not automatic (as Germany and the Netherlands wanted ), but optional. If, once the go-ahead for his line has been obtained, our country were to pull back, according to many observers, the risk would be that of finding itself in a state of isolation which would cause Italy to lose strength in Europe at a time when dealing on the Eurozone budget and the deposit insurance scheme, the latter considered fundamental by Rome.
THE ASSURANCE OF GUALTIERI
The Finance Minister intervened to try to appease spirits: “The conditions for a country's access to ESM loans have not changed, on the contrary, for a specific case, they have been eased, albeit only partially. Above all, it is good to clarify how the reform of the ESM does not in any way introduce the need to restructure the debt in advance to access financial support.
Gualtieri also clarified that: “A lot of confusion has arisen in the Italian debate regarding the reform of the European Stability Mechanism. Italy has not had, does not have and will not need ESM loans: the Italian debt is sustainable, has dynamics under control also thanks to the prudent fiscal policy and in support of the growth that the country is pursuing”. According to him, therefore for Italy there is no danger, indeed the Mes represents "a powerful element of stabilization of the financial markets and a defense against possible crises and must therefore be considered as our ally, not as an enemy".
THE POSITION OF BANKITALIA
A few days ago the governor of the Bank of Italy Ignazio Visco he had sounded the alarm: “The small and uncertain benefits of a debt restructuring must be weighed against the enormous risk that the mere announcement of its introduction could trigger a perverse spiral of default expectations. We should all keep in mind the terrible consequences of the announcement of the involvement of the private sector in the resolution of the Greek crisis after the Deauville summit at the end of 2010”.
Yesterday, 21 November, however, Bank of Italy sources toned down the tone, letting it be known that Via Nazionale is not against the reform, but he wanted to warn about the possible risks, emphasizing that the changes do not imply any debt restructuring and therefore that Italy and its banks (which own 400 billion of government bonds) can sleep peacefully: "The reform of 'ESM – say the Bank of Italy sources – does not envisage or announce a sovereign debt restructuring mechanism”. "As in the treaty already in force, there is no exchange between financial assistance and debt restructuring and also the verification of debt sustainability before the granting of aid is already foreseen by the treaty in force".
FOR AND AGAINST
The debate is also open among experts. We report two emblematic testimonies. There is a line in favor of the reform Lorenzo Bini Smaghi, which on the pages of the Corriere della Sera, underlines: "The important point, which is difficult to understand in the Italian debate, is that the ESM's decision to grant financial support to a country or not, and under what conditions, depends - in the new as in the old treaty - on the political will of the creditor Member States".
“The new treaty – he continues – provides for various reinforcements of the Mes, including the increase in resources, also to finance the single European resolution fund. It allows countries that comply with the Stability Pact to obtain a 'precautionary' program to avoid contagion in the event of a systemic crisis. The support of the Mes also allows access to the unlimited intervention of the European Central Bank (OMT), with a strong stabilizing effect on the markets”.
Instead, he is against the reform Carlo Cottarelli, its The print he asks himself: “If investors know that the bailout fund, the one that can intervene in case of problems, will probably ask for a restructuring of our debt as a condition for a loan, how do you think they will behave? They would stop buying government bonds at the first sign of tension”.
