Italy rejects the ratification of the ESM, now there is chaos in Europe

Full satisfaction from the government majority (“An improved agreement for Italy” – said Giorgia Meloni), fierce criticism from the opposition (“It looks like a Stability Package” – says Giuseppe Conte). It's a game of parties between those who see Italy leaving the agreement on the new European Stability Pact with their heads held high and those who see it once again following Germany And France, true architects of the agreement, despite the much-vaunted return to the center of attention of our country. An agreement that in many ways goes in the direction desired by Germany and the other Northern countries, the so-called 'frugal', but which also marks a paradigm shift compared to the current regulatory framework, as per the French request. But there is a tail: a few hours after the agreement, Italy has rejected the expected ratification of the ESM in Parliamentthe state-saving mechanism, and now there is a storm with Brussels again.

Stability Pact: what changes for Italy

Italy, in essence, was useful to France in the last phase of the negotiations with the Germans. Italy was rarely seen at the table, also because the novelties of the most recent proposal would have especially beaten France, so the negotiation translated first and foremost into a tug-of-war between Bruno Le Maire And Christian Lindner, recalls a German source to La Repubblica. To increase the pressure on Germany and the 'frugals', France brought in Italy. “At that point, for the Italian minister to have vetoed yesterday would have been an enormous gamble. We would have automatically returned to the old Pact” they recall from Berlin. “And for a new suspension, Italy would have had to convince everyone to approve it.”

For Italy we move from a medium-term objective of a structural surplus of 0.25% to a structural deficit of 1.5%. Other reasons for satisfaction are the unbundling of interest on debt and the extension of debt adjustment plans from 4 to 7 years, taking into account investments and reforms of the Pnrr. Points which, according to Paris, also represent a “victory for Italy”. There is certainly confirmation of the Melonian double standardwhich focuses on anti-European tones and national pride in the Bel Paese but then inevitably deals on the tables where Italy is actually weak.

How much does it cost us? Tax wedge at risk

The correction of the structural deficit is already foreseen by Nadef, therefore the government will not have to carry out the much feared corrective maneuver before the European elections. However, the problem is only postponed to the 2025 budget law, because Italy will be subject to infringement proceedings having a debt of over 3%. It is the end of deficit maneuvers, concrete coverage will be needed: spending cuts or new taxes. The risk is not being able to renew the relief on the tax wedge which is worth around 15 billion.

ESM rejected in Parliament, tension with Europe

Less than 24 hours after the Brussels agreement, the vote of the Italian Parliament on the ESM ratification treaty, which was rejected. The votes in favor were 72, 184 against, 44 abstentions, rejecting the first article of the text. In the Chamber of Deputies, the deputies of the Democratic Party, IV and Action voted in favor of the ratification of the ESM. Fdi, Lega and M5S voted against. The deputies of FI, Avs and Noi Moderati abstained.

Majority divided in the Budget Committee. Lega and FdI said yes to the opinion against the ratification of the ESM, therefore voting against the stability mechanism, FI abstained. The opinion had been partly reformulated compared to the one initially presented by the FdI rapporteur but remained contrary. The members of the M5s were absent from the commission.

According to the Dagospia website, someone at Palazzo Chigi suggested to Giorgia Meloni – enraged at having had to bite the bullet on the agreement on the Stability Pact – to reject the ratification of the ESM as a sort of act of pride. An act that will certainly have caused a stir in Brussels, but which does not remove the government's chestnuts from the fire: a final decision will be made in January, and there it will be more difficult to choose to break with the EU with the risk of ending up isolated. Moreover – more than one observer points out – the very fact that the government has shown satisfaction with the Stability Pact and the new PNRR, which have even more severe constraints than those of the ESM, confirms the speciousness of this morning's vote. Or at least that it is more of a political-ideological question than a practical one.

Who needs the ESM?

Our negotiating power, it must be said, is not great. Italy is already de facto within the ESM, moreover with a paid-up capital of 14 billion, the third highest contribution among the adhering countries. Furthermore, it threatens not to approve a mechanism of which it would probably be one of the first beneficiaries in the event of a new sovereign debt crisis erupting, considering that today it has an even higher debt than in 2011. This is more difficult for Germany, which has a debt/GDP ratio under control and serves as a reference for less risky securities.

For it to come into force, however, the green light is needed from all 20 states of the Union, Italy is the only one that has not given it. Effectively creating a problem for everyone else, as the president of the Eurogroup Paschal Donohoe had already made clear in June. “I absolutely respect and can understand the Italian government's point of view if it says it doesn't want access,” he said in June. “But ratification will allow the greater power of the ESM to be made available to other countries, which may instead decide to want to make use of it in the future. I hope that this can be considered within the ongoing debate in Italy.”