I.Prime Minister Giuseppe Conte does not want to be satisfied with the results so far of the European conferences on additional sources of finance for the member states. Conte further threatens not to sign a common document unless there is talk of introducing common Eurobonds. “I am not signing until there is a bunch of adequate instruments,” said Conte. The introduction of Eurobonds was sufficient for him, said the Prime Minister at a press conference at which the extension of the curfew for Italy until May 3 was announced.
After the second evening video conference of the European finance ministers last Thursday in Brussels, there was the impression that, in principle, a solution had been found to the satisfaction of all EU member states: there was no decision taken by France, Italy and other countries as the first instrument called Eurobonds, with which common debts of the European Union are to be raised. But at the same time, the new European Short-time Workers Fund, a guarantee fund of the European Investment Bank and easier access to funds from the European State Rescue Fund (ESM) have eased large sums from various sources.
Conte, on the other hand, said that the results of the finance ministers’ negotiations were “only a first step towards a European agreement, which Italy regards as inadequate”. Italy must continue to fight “for a fund that represents a European community of efforts”. Conte cited a volume of 1.5 trillion euros as the order of magnitude. That would correspond to about 44 percent of the German gross domestic product of 2019 (about 3.400 trillion euros) or 11 percent of the gross domestic product of the European Union with now 27 members (about 14 trillion euros).
Conte was critical of the offer, without being able to use the ESM’s state rescue fund without restrictive conditions. A loan of 2 percent of the gross domestic product is offered. That would be around 36 billion euros for Italy. The Italian government not only considers this amount to be insufficient. Above all, the term ESM in Italy is poisoned by claims by the populist right-wing parties that the ESM destroyed Greece with its conditions and the visits by the troika. Conte wants to allow similar things for Italy, say opposition leader Matteo Salvini and the party leader of the right-wing national “brothers of Italy”, Giorgia Meloni.
Italy’s prime minister dissociates himself from any assumption that he will use the funds of the ESM at all. He caused trouble for the opposition when he pointed out that the ESM had already been set up in 2012, well before he took office. At that time, the ESM, together with the European Central Bank and the International Monetary Fund, helped to save Greece from the financial collapse. This was preceded by a long series of large budget deficits and statistical manipulations of the budget data in Greece, which ultimately intensified investors’ mistrust of Greek government bonds.
In return for the billions in bailout loans, a series of three meticulously formulated reform programs had been agreed for the country. Nationalists from the right and left camps defamed them as instruments of oppression and largely did not implement them. In this way, they also had less positive effects than expected. The propaganda from Greece was added yet another piece in Italy, so that the ESM was burned in Italy.
While Italy continues to rely on Eurobonds on the one hand, on the other hand, even in the government coalition there are economic politicians who believe that issuing Eurobonds within a short time is impossible, even if there is unanimous agreement. Prime Minister Conte, however, demands: “The Eurobonds must be available immediately, if they are late they are not sufficient”.
Borrowing without repayment?
Luigi Marattin, deputy leader of Matteo Renzi’s Italia Viva party, on the other hand, said that it would take years to set up Eurobonds. “I am in favor of this,” says Marattin, but Eurobonds with a larger budget for the European Union ultimately needed a fundamental change in the architecture of the institutions of the European Union.
However, the debate about Eurobonds in the Italian public is not about subtleties like institutional details of a possible introduction of Eurobonds. In Italy, Lega politicians as well as ministers of the ruling five-star movement gave the impression that Eurobonds were the ideal way for Italy to obtain greater financial resources without having to repay any debt afterwards.
Italy had a debt level of 134.8 percent of gross domestic product at the end of 2019, at the same level as in the previous year. Because the viral crisis of 2020 will reduce gross domestic product and, on the other hand, a larger budget deficit will be needed to overcome the crisis, the Institute for the Monitoring of Budgetary Policies at the Università Cattolica in Milan (Osservatorio CPI), led by former IMF expert Carlo Cottarelli, is counting in model calculations a debt level of 150 to 158 percent of the gross domestic product at the end of 2020. That would be the result if some expenditure is not excluded from the calculation or funds from Eurobonds flow.