Europe to Italy: “Without a fully functioning ESM, defence cannot be funded”

Brussels – The idea of a savings union is undoubtedly useful for financing the EU’s policy priorities, namely the double green and digital transition and even more so defence, but it will not be available immediately. So, a real, fully functioning banking union will be needed, with the European Stability Mechanism (ESM) at its best. An impossible situation due to Italy’s failure to ratify it puts the entire European Union and its eurozone in an impossible position to respond to the most pressing challenges. The new censure against the government comes from the Single Resolution Committee (SRB – Single Resolution Board), the Authority for the restructuring and winding-up of troubled banks and the central body of the banking union project.

Established in 2015 after the euro crisis, the special agency raised a central theme at Eurogroup meetings: stability while awaiting competitiveness. A report presented to the economic ministers meeting in Brussels shows how and how much the Italian line affects all partners. “It is clear that the EU will have to mobilise all its untapped resources to address its many challenges,” the premise of the Single Resolution Committee. In this sense, the proposal for a savings union “will be instrumental” and thus an important aid. “However, the implementation of these projects will take time. In the meantime, banks will need to step up and help finance the many strategic investments” that the EU has identified, including supporting the defence industry.

This is where the ESM question arises. As banks have to substitute themselves for a savings union that is not yet there, it becomes “fundamental that the European banking sector becomes more competitive.” This goal “can be achieved by completing the Banking Union.” Thus, an ESM is needed to provide money to the Single resolution fund, set up to restructure or liquidate troubled banks, according to the reform treaty approved but never ratified by Italy. “All countries should urgently ratify the revision of the ESM Treaty to establish the European Stability Mechanism’s common support mechanism for the Single Resolution Fund,” the Single Resolution Committee once again insists. “Having adequate sources of funding in the event of a crisis is more important than ever in these volatile times.”

The ESM has a lending capacity of over €500 billion and liquidity of €80 billion as a crisis buffer. Of this, according to Pier Gramegna, executive director of the European Stability Mechanism, €68 billion can be used to restructure banks in difficulty. “If Italy does not ratify it, the ESM cannot disburse the €68 billion of the rescue network,” the “backstop” designed to prevent the worst.