by Luca Ruggeri

A note from the chief of staff of the Italian Ministry of Economy and Finance has reignited interest about the ratification of the amendment to the ESM (European Stability Mechanism) treaty by Italy, prompting the publication of articles that have portrayed the ratification itself as free from complexity and, in essence, risks for Italy.

It seems clear that the modalities and timing of the ministry's intervention should be framed in the complex affair involving the ESM; let us remember that Italy is the only country that has not yet ratified the amending agreement, and it is clear that the issue is intertwined with other very important aspects, starting with the PNRR up to the upcoming European elections.

We leave to others, better fitted than the writer, the political analysis of the affair and considerations about the reflections in relations with the European structures that evidently yearn very much to be able to close the ratification.

We therefore limit ourselves to analyzing the technical outlines of the essential passages of the note from which, we anticipate from the outset, there is nothing new to justify the enthusiasm of the journalistic sources that have always supported the ESM, without ifs and buts.

The salient points of the note are three.

The first consists of the claim that ratification does not import direct effects on public finance since it does not entail new or greater burdens than the commitments already made. In fact, Italy has already paid €14 billion and has committed to pay another €125 billion upon simple request; the ratification therefore does not produce new commitments, in addition to the very substantial ones already in place, although it should be remembered that it expands the role of the ESM by giving it the function of backstop to the Single Resolution Fund for banks.

The second point concerns the indirect effects of the ratification. The note explicitly states it "appears difficult to assess," an honest statement that is difficult to dispute. First, it is written that ratification does not make the ESM more risky thus assuming Italy's role as a creditor. Of greater interest is the next passage according to which "based on feedback from analysts and market participants" ratification could make our debt less expensive to the extent that it would be perceived as a sign of strengthening European cohesion, although "it is difficult to predict ex-ante" the actual impact. This is actually the most important profile especially if read in reverse, one might in fact wonder what the cost of non-ratification would be in the current context but the ministry note does not go into that assumption.

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The third point is written about the effects on public finance of the possible activation of the ESM, in other words the cost of ESM intervention should Italy request it; the effects are not quantified as they are linked to various factors that would be determined by the actual situation at the time of the request for assistance.

In a nutshell, the note does not add anything to what is already known while it does not address some very problematic aspects of the reform including, for example, the impact of a negative or even dubious judgment on the sustainability of Italian debt by the ESM, to which the ratification attributes such a role; in such a hypothetical eventuality Brennus' sentence would retain all its relevance.

Senior Fellow at the Centro Studi Machiavelli. A graduate in Economics, he worked for over twenty years at a large Italian bank and currently serves as a general manager at an institutional investor.