The stage is set for the upcoming two-day summit in Brussels, where EU leaders will debate a series of divisive issues as the coronavirus-stricken eurozone plunges into its worst economic crisis yet.
The main discussion points will be the EU’s seven-year budget and the attached €750 billion recovery fund, which is intended to breathe oxygen into the bloc’s economies following the havoc wrought by the pandemic.
The recovery fund, as proposed by France and Germany in May, will entail debt mutualisation and a package of grants and funds to be distributed among member states. Italy, the first EU country to bear the brunt of the pandemic, is set to be one of the main beneficiaries – but its political integrity may be on the line, depending on what the summit will produce.
EU members are divided over a range of issues, including the size of the recovery fund and which conditions should come with the loans. Tomorrow’s discussion will likely pitch the majority of the bloc’s 27, led by Germany and France, against a small group of frugal countries opposing debt pooling and cash handouts, preferring conditions-laden, shorter-term loans to be paid back in full for the sake of fiscal responsibility.
While the greater part of the recovery fund will be unlocked in 2021 (if approved), there is a little something called the ESM (European Stability Mechanism), available immediately, which would grant an amount equalling to 2% of a country’s GDP at a favourable interest rate. The only condition attached to it is that the money must be used for the country’s health system.
Italian prime minister Giuseppe Conte is facing his personal set of woes concerning the ESM. The Parliament is split, with those who oppose the ESM far outnumbering those who look upon it favourably. Members of the opposition have called it a “trap” of Brussel’s making and argue that accepting the conditions would place a chokehold on the country’s sovereignty.
The Five Star Movement, senior partners in the coalition government, have lined up with the opposition in strongly opposing the ESM, although internal dissent is brewing. They all argue that the incoming money from the recovery fund will be more than enough to finance Italy’s resurgence, although that fund’s conditions are yet to be set. They also underline that no other EU country has accepted the ESM.
On the opposite side you have the likes of the Democratic Party, who make up the rest of the governing coalition together with small-but-crucial Italia Viva. They have been pushing to accept the ESM, arguing that the grant’s interest rate is extremely favourable for Italy and, most of all, sorely needed. Silvio Berlusconi’s Forza Italia, which usually teams up with the opposition, has sided with the Democrats.
As professor Mauro Calise told us, it’s not really a matter of whether to accept the ESM – “I anticipate that even the Five Star will accept it, although with a bit of stomach ache” – but rather a matter of timing the investments, given that the money would arrive immediately.
As Italy’s debt is projected to rise to 160% of its GDP by this year’s end, and the recovery fund money will be made available much later, the €36 billion ESM cash injection could be of real help.
Regardless, the Five Star’s “stomach ache” could also result in the explosion of the already frail government coalition. Parliament is at an impasse and PM Conte, fearing for his team’s integrity, has been deferring the decision for weeks now, partially inhibiting the time-sensitive aspect of the ESM.
Furthermore, Raffaello Morelli and Pietro Paganini have pointed out on Formiche.net that the ESM is not technically a European institution, but rather an international bank supported by an intergovernmental treaty. Thus, the conditions that were essential to past ESM bailouts cannot simply be eliminated by a stroke of the European Commission’s pen.
The debate over the ESM foreshadows the immense difficulties that Italy could incur in if asked to restructure its debt or its economy to access the recovery fund’s money. Rome is averse to unpopular fiscal reforms, as the coalition government itself hangs on to dear life and the somewhat Eurosceptic opposition maintains a solid lead in the polls.
Some have argued that one of the recovery fund’s objectives is to shift Italy’s political trajectory towards a less Eurosceptic, more collaborative future. However, as things stand, there is a real risk of it never happening due to the timing and the divisiveness of these matters. Thus, tomorrow’s Brussels meeting could make or break Italy as we know it, even if indirectly.
