Did Prime Minister Conte secretly sign Italy's financial future away?

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April 18, 2020
Written by: Angelo Colella

On April 10th, during a press conference from the Chigi Palace in Rome, seat of the Government of the Italian Republic and official residence of the Prime Minister of Italy, Prime Minister Giuseppe Conte really has had the chance to make some clarifications about recent matters of public interest.

The lockdown period due to the quarantine, initially intended to be concluded on April 14th, has been extended again up to May 3rd, and this decision comes across as hardly surprising: in addition to Easter and Easter Monday, on April 12th and 13th, the next holidays are Liberation Day, on April 25th, and Labor Day, on May 1st. It's highly likely that the Government has tried to prevent the population from going anywhere because of the holidays, especially Labor Day which falls on a Friday and could have easily led to a long weekend.

Chigi Palace
Chigi Palace Palazzo Chigi (Credit Flickr | Wendyday 01)

Prime Minister Conte continued by saying that the whole nation will start over, but with great care, after May 4th, adding the the meaures undertaken are working and stressing that the success of the iniziative is resting on the collective respect for the rules. He has also announced the creation of an expert committee: it will be a pool of, among others, sociologists, psychologists, labor consultants, managers, with the task of assisting the Government in May, during the next so-called "Phase 2", in order to make the next moves as rationally as possible.

Italy Prime Minister (2020) Giuseppe Conte
Italy Prime Minister (2020) Giuseppe Conte (Credit Wikipedia)

He then proceeded to report a declaration by the WHO European Office stating that Italy is being a role model for the other European countries to follow, and then, unexpectedly, his tone of voice changed. It was really a slight change, but one could definetely tell that he was angry while he talked about two opposition politicians that, the day before, had accused him, through their social media accounts, of taking advantage of the quarantine to secretly sign the European Stability Mechanism, thus betraying the Country and selling off Italy's future.

He was so angry, in fact, that he decided to publicly name their names on live television: they are Former Italian Minister of Interior and Former Deputy Prime Minister of Italy Matteo Salvini, currently Congressman of the Republic, and Deputy Giorgia Meloni.

Italy former Minister of Interior Matteo Salvini
Italy former Minister of Interior Matteo Salvini (Credit Wikipedia)

And, dismissing their statement as false rumors, he then clarified that the European Stability Mechanism exists since 2012, and that neither he nor anyone else has signed anything in secret the night before. So, no secret meeting held by the Eurogroup and, above all, no covert manouvers behind the Italians' backs. All that's left to say, according to Prime Minister Conte, is to sadly take note of the fact that, in the eyes of Europe, Italy's position appears now to have weakened. 

The next day the two opposition politicians both retaliated, again through their social media accounts: Congressman Salvini persisted with the accusations, demanding that each person in Italy must have at least one free surgical mask to defend themeselves against the coronavirus, and condemning the Government who neglects the unemployed workers who still haven't received unemployement benefits and instead attacks the journalists and the oppositions, even during the holidays.
Deputy Meloni called Prime Minister Conte a jumpy quarrelsome bully, who has used the public service television to undemocratically conduct personal attacks on the opposition without giving any opportunity to contradict him or to reply to him, and at the same time she asked the RAI, Italy's national public broadcasting company, to accord the same treatment to her too, other this will be yet another proof that Italy's now under a regime.

Italy deputy minister Giorgia Meloni
Italy Deputy Minister (2020) Giorgia Meloni (Credit Wikipedia)

This has prompted Prime Minister Conte to react during another press conference, on April 13th. He explained that the previous press conference, the one from April 10th, was not a simultaneous broadcast because it was not a speech to the nation: the HD audio and video signal, as it always happens, had been made available to any TV network who had decided to air it. So the RAI had chosen autonomously to broadcast the press conference, and in this respect Prime Minister Conte didn't commit an abuse of power.

Moreover, that press conference was not held specifically to paint some political opponents in a negative light: multiple issues were addressed, and numerous questions by the journalists were answered about the corona virus crisis and the European Stability Mechanism. It wouldn't have been possible to talk about this last topic without making any reference to the rumors spread by his two political opponents. It could have actually been worse to not mention them at all and let the people's trust in the Government be compromised at a time like this.

This explanation was obviously much needed because the general public doesn't always have the specific knowledge in such sector-specific matters and, of course, with the fear of another economic downturn approaching, nobody will take lightly any story about political plots to make the public debt worse and the nation poorer.

So, what exactly is the European Stability Mechanism, and why has it been so important to talk about it lately? This is how a "technical" question has been transformed into a political fight.

The ESM is basically a permanent European-based financial assistance fund, supplied with 650 billions of euros, created in 2012 with the purpose of securing financial stability to the whole euro area by aiding those eurozone countries in serious financial distress, provided that they take it on themselves to submit to strict conditions such as macro-economic adjustment programmes.

It basically issues loans and makes sure that they are repaid, sanctioning those eurozone countries who won't comply with the deadlines.

European Stability Mechanism bond board governors inaugural meeting 2012
European Stability Mechanism bond board governors inaugural meeting 2012 (Photo: European Stability Mechanism)

The procedure goes as it follows: a eurozone contry asks the ESM for financial help and, in turn, the ESM asks the European Commission to confirm that the financial crisis in the requesting eurozone country could endanger the other eurozone countries too; to verify the requesting eurozone country's financial situation; and to estabilish how much financial aid it actually needs.

As it can be read on its website, the ESM is led by a ¡®Board of Governors' consisting of 19 Ministries of Finance from the euro zone: this Board discusses unanimously every main decision regarding the granting of financial aids and the adoption and approval of the memoranda of understanding by those eurozone countries in need of them.

European Stability Mechanism bond governor Italy
Roberto Gualtieri is the current ESM Board of Governor from Italy (Photo: European Stability Mechanism)

It is also specified that the ESM exists outside the legal framework: this means that its resolutions have no legal force, and it certainly doesn't happen that the representatives of the richest eurozone countries make all the decisions by themselves. The right to vote that each Member has is proportional to the value of the shares with which each Member contributes to the fund, with a threshold of 85% of the common fund. These shares are based on each country's respective share of the EU total population and GDP: Italy, for example, contributes with 14 billions of euros, more or less, which gives Italy only the right of veto.  

So, eurozone countries can resort to the ESM for financial aid only during major financial crises: would it be justified for Italy to do just that, given the pandemic scenario we're living in Europe, even if ours is more of a health crisis? This was Prime Minister Conte's idea back in March 2020.

Interviewed by the Financial Times on March 19th, Prime Minister Conte was willing to rely on a financial aid by the ESM, provided that, once the health crisis has passed, there will be no consequences for Italy to deal with.

European Stability Mechanism bond governance structure
ESM Governance Structure (Photo: European Stability Mechanism)

An extraordinary situation calls for extraordinary measures: the idea was to issue some kind of European collective debt called 'corona-bonds', on the premises that right now every country in Europe is facing the same emergency, so it's only fair that every countries should benefit from the common fund.

The request seemed necessary because, just some days earlier, the European Stability and Growth Pact had been suspended, with the effect that each State was allowed to issue more debt: because this was each State's debt, they themselves should pay it back once the corona virus crisis has passed.

It's easy to see why this scenario, in which the new debt should be depreciated and mutualized, would be more desirable for Italy, when the alternative is to issue more debt now and face even harsher austerity policies later.

Not every country in the eurozone accepted the proposal: in fact, the Ministers of most Northern European countries, especially Germany and Holland, were against it, whereas Southern European countries such as Spain agreed with it, and France was seeking a compromise.

And, in fact, the Eurogroup, the collective of the Ministers of Finances, did indeed meet on April 9th to find a solution, and found it somewhere in between: the ESM can be used to unconditionally provide 200 billions of euros to those eurozone countries who will require them (which Italy didn't do), as long as they are used only for the healthcare and not for any expenses that are not directly linked to this emergency. These last ones will require to follow the original 2012 procedure.
So,  no 'coronabonds' but a temporary fund which is adequate to the costs that this crisis is entailing.  But, in the hopes to keep the 'coronabonds' negotiations going, this final document wasn't even signed by Italian Minister of Finances Roberto Gualtieri, who instead has been called a traitor by his political opponents for having  signed the document in secret.

Author Angelo Colella is a professional translator fluent in Italian, English and French, you can reach him here.

 

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