Why is cash-strapped Italy reluctant to ask for cheap eurozone loans?






The eurozone bailout fund says it has a special lifeline for countries struggling with Covid-19, but Italians can't make their minds up on the offer: too good to pass on it, or a Trojan horse that could make them hostage of Brussels' economic diktats?



With an economy set to tank by more than 10 per cent and rocketing levels of public debt, you might expect virus-stricken Italy to grab all the available help from the European Union it can get.
And yet, the possibility that Rome might tap into cheap loans of up to 36 billion euros (41 billion dollars) from the European Stability Mechanism (ESM) has become a toxic subject in Italian politics.
"The debate is still a bit far off," Prime Minister Giuseppe Conte said last week, attempting to skirt over an issue tearing apart his ruling coalition.
Conte - whose government relies on one side on the pro-Europe, pro-ESM Democratic Party (PD), and on the populist, anti-ESM Five Star Movement (MS5) on the other - is in an awkward position.
In some Italian quarters, the ESM has a bad reputation because it is associated with the painful rounds of austerity its loans were linked to during the eurozone debt crisis.
But in the wake of the Covid-19 pandemic, a new ESM facility was created to help virus-stricken countries like Italy, with apparently far fewer strings attacked.
"With the new credit line, the ESM cannot impose any kind of ex-post austerity, troika, cuts to pensions or the public sector," ESM Secretary General Nicola Giammaroli told La Repubblica.
"We are in a different ballpark than in the past: the only condition to be met is that the money is used for health care," he said in a interview with the Italian daily this week.
Some Italian politicians, both in government and in opposition, are not convinced. The M5S sees eye-to-eye on this with its former ally, the opposition hard-right League party.
"Not a single comma" of the ESM treaty has changed, so any talk of no-strings attached for the new loans "has no legal value," Senator Alberto Bagnai, the League's economic affairs speaker, told dpa.
"I am like the Germans: I am for the respect of the rules, and the rules have not changed," Bagnai said. "The ESM would heavily condition the policies of future governments," he insisted.
Piernicola Pedicini, a M5S member of the European Parliament, was on the same page. "The Five Star Movement finds these verbal assurances insufficient and in any case not legally binding," he told dpa.
He also spoke about a "possible stigma effect" if Italy went cap in hand to the ESM, which would push up its regular borrowing costs and exacerbate its financial troubles.
There is no evidence, however, that this was an issue for previous applicants to the ESM like Spain, Portugal and Ireland, while it was for more indebted Greece.
On the other hand, the pro-ESM camp trusts the political assurances coming from the European Commission and others about softer ESM terms, and points to cost advantages.
Italy would pay 0.08-per-cent interest on a 10-year ESM loan, against a 1.6-per-cent yield on its 10-year government bonds, according to a pro-ESM appeal published by the daily Il Foglio.
Relying on ESM loans rather than regular bond issuances would save the country 5.8 billion euros in a decade, the economists behind the appeal, Fabrizio Pagani and Fabio Pammolli, estimated.
"I was very sceptical about the absence of [austerity] conditions, but I am now convinced that there aren't any," Carlo Calenda, leader of Action, a small, pro-EU, centrist opposition party, told dpa.
"But the populists and the nationalists will continue to see the ESM as a Trojan horse [...] it has become an ideological debate, separated from reality," he lamented.
League leader Matteo Salvini has suggested it would be better to get Italians to buy national debt, even if it is a more expensive option, rather than rely on EU institutions.
"I trust Italians, I do not trust, with all due respect, European bureaucracy. ESM? Money to be paid back with an interest, on conditions imposed by others," he tweeted on Tuesday.
Wolfango Piccoli, co-director of the Teneo Intelligence research firm, told dpa he saw no reason to forego the ESM help. "It's like throwing away 5 billion euros," he said.
He predicted that Conte would eventually go for it, using all the possible political fudge to make the move as palatable as possible to the recalcitrant M5S.
On Wednesday, the premier said he would consider "what is convenient and what is not convenient for Italy" only after the EU's proposed 750-billion-euro recovery fund was approved, hopefully next week.
Piccoli expected no imminent breakthroughs.
"Considering that this government's main objective is to stay in power as long as possible, they are going to kick the can down the road as much as they can," he said.

Thursday, July 9th 2020
By Alvise Armellini,
           


New comment:
Twitter

News | Politics | Features | Arts | Entertainment | Society | Sport