The Reform of the ESM and Why It Is So Controversial in Italy
Capital Markets Law Journal, Volume 15, Issue 2, May 2020. Forthcoming.
20 Pages Posted: 31 Mar 2020 Last revised: 29 Apr 2020
Date Written: April 28, 2020
* The draft reform of the European Stability Mechanism (henceforth ESM) was not approved as scheduled in the Euro Summit in December 2019 because the Italian Prime Minister was obliged to ask for a delay in the face of strong domestic opposition to the reform coming from populist parties.
* It is not clear if the reform will ever be approved and if, in this case, the Conte government will survive.
* The arguments used by the populists against the reform are deeply flawed.
* The proposed changes in the text of the EMS Treaty are relatively minor and do not contain any mechanism of automatic restructuring of the debt of countries asking for financial assistance from the ESM.
* However, the small changes in the text reflect the idea that Italy will soon be obliged to restructure the debt. The only possible answer by the Italian authorities is to set up a plan for a gradual reduction of the debt to GDP ratio.
* Restructuring the debt may be a painful necessity, but it is not a way to solve the problem of
the debt in a country in which most of the debt is held by residents.
Keywords: ESM, Euroarea, Sovereign Debt, Default, Restructuring
JEL Classification: E62, G01, H5, H6, H63
Suggested Citation: Suggested Citation