Politics & Economics

European Stability Mechanism (ESM): The history and stumbling blocks of a useful tool not yet ratified by the Italian Parliament.

May 2023
By Gianni Pittella

Periodically, discussions about the ESM, “European Stability Mechanism”, resurface, sometimes with a blatant ignorance of what it really represents, sometimes with ideological interpretations, other times with propagandistic intentions.

What is the ESM, and what is its purpose? The ESM was established in 2011 as a bailout fund to assist Eurozone countries in difficulty due to the severe financial crisis of the time.

In 2021, it was reformed in several aspects, including the preliminary assessment of loan repayment capability, the monitoring and assistance activities in the loan disbursement to the requesting state, stricter criteria in the disbursement itself, and a synergistic action with the Single Resolution Fund to aid struggling banks.

These amendments were made by the 20 signatory countries of the “old” ESM, including Italy (Conte government). However, while other countries ratified the amended Treaty in Parliament, in Italy, a heated debate erupted that prevented its parliamentary transit and approval.

The deadlock persists despite there being good reasons to consider using this instrument, both in case of repercussions on banks related to the new US financial storm and to strengthen the health system, especially the local one, after the lessons of Covid.

The issue is that the Italian Parliament’s failure to ratify prevents the use of the ESM by those countries (practically all) that have ratified it and, objectively, puts Italy in a difficult relational situation with its Eurozone partners just as important dossiers such as the reform of the Stability and Growth Pact, the PNRR (Recovery and Resilience Plan), and the completion of the Banking Union are being addressed.

Reading the recent statements by Minister Giorgetti, we understand that these dossiers are precisely what concerns the Italian Government, and, therefore, the green light to the ESM would be conditioned on the acceptance of our demands on the mentioned dossiers.

In other words: I’ll give you the ok to the ESM (as if we wouldn’t be interested in accessing these loans for healthcare) and you give me common guarantees on bank deposits, a more substantial easing of the Stability and Growth Pact constraints, more flexibility in the use of the PNRR funds. But if this is the big deal that is wanted, add also the revision of the Dublin Treaty, involve responsible and constructive oppositions, and do it quickly!

Because the deadlock on these issues is deadly for Italy and for Europe.