The chairman of the Eurogroup Mario Centeno announced on Wednesday that changes to the European Stability Mechanism (ESM) would be adopted early next year instead of next week.
The delay provides room for negotiations with Italy. Economy Minister Roberto Gualtieri made clear that Italy is not ready to accept a German proposal to limit the so-called “death loop,” ending a requirement by national lenders to hold sovereign bonds. At the same time, Italy is pushing for a common European deposit insurance scheme (EDIS), which Germany is reluctant to accept.
The reform would also facilitate debt restructuring, by requiring Eurozone member states to include in sovereign bond issues a so-called “single limb collective action clause” (CACS) that limits the ability of investors to prevent debt restructuring. Under the new system, restructuring would go ahead on the basis of an “aggregate vote” rather than each individual.
Italian prime minister Giuseppe Conte ruled out vetoing the ESM but Rome has set clear red lines.
According to the Eurogroup’s President, Centeno, the 19 finance ministers agreed on Wednesday to simplify future sovereign debt restructurings. However, Italy insisted that this reform would make part of a bigger package that would include EDIS.
“We do not sign until we know the other reforms in detail,”. Italy’s European affairs undersecretary, Laurea Agea, said in a statement on Thursday.
Italy fears that giving the ESM the mandate to negotiate financial aid in exchange for debt-restructuring could lead to a self-fulfilling prophecy. A sudden deterioration in Italy’s risk profile would make it difficult for Rome to manage a €2 trillion euro debt pile.
League leader Matteo Salvini has called on President Sergio Mattarella to intervene in this case, accusing the government of treason.