Brussels returns to push for the reform of the Mes

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Do you remember the reform of the European Stability Mechanism that a lot of political controversy created at the end of last year? This is the ‘mother’ of the controversy surrounding the Mes today and blocking the government’s request for loans of 37 billion from the new credit line established for the pandemic. Over the past three months, Covid has also suspended the ‘Save States’ reform. But, according to European sources, economic ministers resume discussions tomorrow on strengthening the banking union in the Eurogroup. Brussels is pushing for an early start: the new MES will also provide the safety net (backstop) for banks in difficulty. Without the reform, no network, which should enter into force from January 2024.

There are therefore two more years of time. But it is time for the EU to resume the discussion, now that the spread of Covid is slowing down, leaving the aftermath of an unprecedented economic crisis. A fortiori, the topic returns to the Eurogroup tomorrow, according to the advances provided by European sources in Brussels.

The last time we talked about it was in January, when in Brussels they expected a final signature in March, but the government of Rome has slowed down waiting for the entire package to strengthen the banking and monetary union to be complete. Not only the Mes, therefore, but also the European deposit insurance scheme (Edis), on which at the moment there is only the German proposal, rejected by Minister Roberto Gualtieri in the Eurogroup meetings before Christmas. Because that proposal links the common insurance on bank deposits to a revaluation of the risk of government bonds in the belly of the banks. Too risky for Italy.

And then there is the ‘third leg’ of the package, the so-called ‘Bicc’ (‘Budgetary instrument for convergence and competitiveness’), a budgetary instrument that will finance structural reform packages and public investments to strengthen the potential growth of the area’s economies euro and the resilience of the single currency in the face of economic shocks.

At the end of last year, while in Italy the political controversy over the MES raged, sparked by the League and ridden by the M5s, Gualtieri had managed to obtain the postponement of the political agreement on the new MES and also of the changes to the reform. In particular, on the so-called ‘CACS’, the collective action clauses that regulate the renegotiation of public debt securities. In essence, the minister had obtained the establishment of ‘subsets’ that can guarantee all those who have invested in government bonds in the event of “extreme” debt restructuring. Everyone: not only the simple majority that decides (single limb), but also minorities.

The Mes reform does not provide for automatic debt restructuring. It entrusts the evaluation to the European Commission, in collaboration with Mes himself, “in compliance with the Mes Treaty, European Union law and cooperation agreements between the two institutions”. But at the end of last year, due to the Northern League propaganda unleashed against “enhanced surveillance” for the States that make use of the Mes, the ‘Save States’ reform proved to be the first Achilles heel of the majority of the Pd government. M5s, born in the summer. From that controversy onwards, the Mes has earned the bad reputation that still divides the majority and blocks the request for the 37 billion euros of loans that would be due to Italy by the new credit line established in the ‘save States’ for the pandemic.

Tomorrow the theme will be resurrected after the Covid parenthesis. It will be a first discussion, nothing definitive even if from Brussels they insist that the national states ratify the reform of the Mes as soon as possible. Because it is precisely the ‘Save States’ that will provide that safety net (backstop) for the Single Resolution Fund, fund financed by European banks to help institutions in difficulty. In essence, with the establishment of the ‘backstop’, the Mes will be able to finance this Fund with 55 billion euros. This too is a victory for the most indebted states, such as Italy. “From a technical point of view, we cannot impose on States the ratification of the new Mes. But from a practical point of view, ratification is necessary otherwise we do not have the common backstop tool “to secure banks, says a European source.

Tomorrow, there will also be discussions about the ‘recovery fund’ that yesterday underwent a ‘technical knockout’ in the first round of discussion between member states at Ecofin, the finance ministers of the 27 EU countries. The Eurogroup will investigate the aspects most relevant to the euro area. But the differences between states remain. Yesterday the German minister Olaf Scholz asked to downsize the recovery fund, bringing it back to the 500 billion euros foreseen by the Franco-German proposal (the Commission increased it to 750 billion). No by Gualtieri, contrary to any retouching of the von der Leyen plan. The opposition from the ‘frugal’ countries remains, which is why Germany is now asking to downsize the fund. But glimpses come from Denmark: “Our task is not to veto, but to find a solution,” says Socialist Prime Minister Mette Frederiksen, “the government is in favor of the fund to help the countries most affected” by the pandemic. Despite the differences, Brussels are confident of a final agreement next month: the extraordinary European council should be convened for 9 July.





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