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

See all articles by Giampaolo Galli

Giampaolo Galli

Osservatorio sui Conti Pubblici Italiani dell'Università Cattolica, Roma; Luiss-Sep

Date Written: April 28, 2020

Abstract

* 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

Galli, Giampaolo, The Reform of the ESM and Why It Is So Controversial in Italy (April 28, 2020). Capital Markets Law Journal, Volume 15, Issue 2, May 2020. Forthcoming. , Available at SSRN: https://ssrn.com/abstract=3549424 or http://dx.doi.org/10.2139/ssrn.3549424

Giampaolo Galli (Contact Author)

Osservatorio sui Conti Pubblici Italiani dell'Università Cattolica, Roma ( email )

Largo Francesco Vito, 1
Roma, 00168
Italy
3358315044 (Phone)

Luiss-Sep ( email )

Via O. Tommasini 1
Rome, Roma 00100
Italy

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