Populist politics in Italy delay signing up for eurozone lifeline

Brussels/Figeac — Populism in Italy is not cheap, and it may cost the government in Rome about €626m a year.

That’s the amount of money Italy would stand to save annually if it signs up for a new eurozone programme, which will extend huge credit lines to struggling countries at near-zero interest rates.

But the Italian government has not committed to signing up for a credit facility from the European Stability Mechanism (ESM), having initially said it would not tap the €36bn it is eligible for because of the stigma associated with the bailout fund.

The new programme would have a maximum average maturity of 10 years for the loans, and would probably pay interest of about 0.1%, or €36m annually, for the full allocation. If Italy instead went to the bond market to finance its recovery with 10-year debt it would confront borrowing costs of about 1.84%, meaning for the same amount of money, Rome would pay about €662m in interest annually.

The ESM programme has not yet been finalised and all the details of the credit lines may not become clear until it is in place, likely by May 15.

Populist parties in Italy have portrayed the ESM as a sell-out to Europe, telling voters the country would lose control of its finances and future if it were to accept help from the fund. Finance minister Roberto Gualtieri and his staff have been at pains to explain that these specific ESM funds will have almost no strings attached other than the need to use the money for health-related purposes.

Despite reassurances from officials in Brussels that the loans wouldn’t have any conditions, Italian populists continue to say that the credit lines would undercut Italian sovereignty. That’s a problem for Prime Minister Giuseppe Conte, who’s facing calls to issue new Italian debt instead.

“The ESM is not a gift, it’s loaned money that must be repaid at precise conditions decided in Brussels and not in Italy,” Italian opposition leader Matteo Salvini told reporters on Friday.

“The ESM is a dangerous path devoid of certainties, whereas the extraordinary emission of Treasury bonds ‘Italian Pride’ [guaranteed by the ECB] even at a higher price, wouldn’t pose any risks or conditions for Italy,” Salvini said.

Bloomberg