Italy’s Treasury says ESM reform could boost country’s credit standing

By Giuseppe Fonte

ROME (Reuters) – Ratifying the reform of the euro zone bailout fund could boost the credit standing of the European Union’s most indebted countries on financial markets, an Italian Treasury document seen by Reuters showed on Wednesday.

Italy is the only country dragging its feet over the approval of the treaty that reviews the so-called European Stability Mechanism (ESM) due to concerns it could trigger a restructuring of its huge public debt.

Italy’s debt-to-GDP ratio is the second highest in the euro zone after Greece’s, and is forecast to stand at around 142% GDP at the end of this year.

Prime Minister Giorgia Meloni has repeatedly said that requesting help from the ESM carried a “stigma” for applicants.

The Treasury document, transmitted to the Foreign Affairs committee and released by some opposition lawmakers, argues that ratifying the treaty would not entail additional spending for Italy’s strained state coffers, but could have positive indirect effects.

Created in 2012, the ESM offers a lifeline to euro zone governments cut off from markets. In return, it normally requires the country concerned to implement austerity measures or economic reforms.

The fund was reformed with a 2021 treaty which cannot come into force unless and until all euro zone members ratify it.

If perceived as a sign of strengthening European cohesion, the ESM reform could lead to a “better assessment in the credit merit of the member states, with a more pronounced effect for those with a higher level of debt such as Italy,” the Treasury document argues.

Signed off by the head of staff of Economy Minister Giancarlo Giorgetti, the document sparked quarrels between ruling and opposition lawmakers.

“The Treasury certifies that Italy would only benefit (from the ESM reform),” centre-left Democratic Party (PD) opposition lawmaker Enzo Amendola wrote on Twitter.

The committee is due to give an opinion on the treaty ahead of a discussion in the lower house which is currently scheduled for June 30 but could be postponed, lawmakers said.

(Reporting by Giuseppe Fonte; Editing by Angelo Amante and Christina Fincher)