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EXPLAINED: Why Italy's Meloni is in a pickle over the EU's bailout fund

AFP
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EXPLAINED: Why Italy's Meloni is in a pickle over the EU's bailout fund
Italian Prime Minister Giorgia Meloni is now facing increasing pressure from her coalition partners as the government is urged to make a final decision over a reform to the eurozone's bailout fund. Photo by Filippo MONTEFORTE / AFP

Italian PM Giorgia Meloni may have softened her once strident, anti-EU views but the ratification of a reform to the eurozone's bailout fund has now left her in a quandary as the unity of the right-wing coalition hangs in the balance.

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Italy is the only country that has not yet ratified a 2021 reform of the European Stability Mechanism (ESM), which strengthened the fund's financial firepower and increased its authority to supervise countries in difficulty.

But a draft ratification law put forward by Italy's centre-left opposition has exposed tensions within Meloni's government.

Her far-right Brothers of Italy party has long been critical of the European Union, but since taking office in October, Meloni has chosen not to rock the boat with Brussels.

Her main coalition partner, Matteo Salvini, leader of the League party, is more overtly critical of the EU and is particularly opposed to the eurozone bailout fund.

On the other side of the coalition is the late Silvio Berlusconi's right-wing Forza Italia, which has long supported ratification even if its
position has recently become more nuanced.

READ ALSO: ANALYSIS: What will happen to Italy's government without Berlusconi?

Disagreements exploded into the open following the publication last week of a technical opinion in favour of ratification from the chief of staff to Economy Minister Giancarlo Giorgetti – a member of the League.

When the ratification bill moved to a parliamentary committee, government lawmakers – unable to agree on a common approach – simply failed to turn up.

However, the bill progressed with the support of opposition MPs, with a full parliamentary debate planned for Friday.

'Sign in blood'

Created in 2012 in the heat of the eurozone debt crisis, the ESM borrows on the financial markets to provide loans at below-market rates to eurozone states in difficulty, who must in return implement reforms to their public finances.

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Spain, Portugal, Greece, Ireland and Cyprus have all used it but Italy remains deeply suspicious, with many considering it a tool for northern European countries to impose austerity on the south.

READ ALSO: France's Macron and Italy's Meloni seek to smooth out disputes

There are also fears in Italy that if it used the ESM, it would be forced to restructure its enormous debt, valued at 144 percent of GDP – the highest ratio in the eurozone after Greece.

"As long as I count for something, Italy will not join the ESM – I can sign that in blood," Meloni said in December 2022.

'Playing for time'

But in recent days, Meloni has chosen to criticise not the ratification itself but the timing of any parliamentary vote, urging its delay last weekend.

The government is trying to "play for time to find common ground and avoid exposing its internal divisions in public," said Franco Pavoncello, professor of political science at Rome's John Cabot University.

Italy signed the 2021 reform along with other eurozone members but it is now under pressure from its EU allies to ratify as soon as possible, as the reform cannot come into effect until all national parliaments agree.

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Aware of its leverage, Rome is "trying to use the ESM treaty as a negotiating tool to obtain something in terms of fiscal rules", said Lorenzo Codogno, former chief economist at the Italian Treasury.

However, he said this was a "very risky strategy", that would potentially create a clash with Brussels.

Meloni confirmed on Wednesday she was seeking with Brussels a "comprehensive approach, in which the new rules of the stability pact, the completion of the banking union and the financial safeguard mechanisms (ESM) are discussed as a whole".

The EU is currently debating reform to its fiscal rules, known as the Stability and Growth Pact, which set limits on member states' budget deficits and debt.

"Maybe they will obtain something but I think that Europe's patience is reaching its limits," said Pavoncello.

By AFP's Brigitte Hagemann

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