“The ratification of the Mes? Not now”. Meloni opens and admits the negotiation

ROME. A turning point in politics can be hidden behind the veil of an adverb. Goettweig, Austria, yesterday. Giorgia Meloni is at the European forum dedicated to migrants. With a long periphrasis you answer a question on the ratification of the reform of the bailout fund, scheduled for the House on 30 June. “Parliament had voted a motion in which it asked the government not to ratify the Mes”, and this must be done all the more reason “pending the decisions concerning the overall framework of European governance”, or rather “stability law, banking union, guarantees European deposits”. Therefore «those who today ask to make the decision at this moment are not doing Italy a favour. Regardless of the merits, I hope that whoever scheduled it will reconsider this decision». In Meloni’s language, “right now” is the key to everything, the implicit admission of the fact that yes, Italy will ratify the bailout, but we need to wait a little longer. There is also something else significant in the premier’s response: the admission – this one more explicit – of the fact that the Italian veto on the latest ratification among the twenty euro area countries has a negotiating objective: to obtain counterparts on the other dossiers cheap at the twenty-seven table.

The problem is that so far the Italian strategy has not produced satisfactory results. Treasury Minister Giancarlo Giorgetti has had proof of this in recent weeks in meetings in Brussels with colleagues. And so, in early June, the decision was made to present the technical document to the Commission which lists the benefits of the reform and should pave the way for ratification. Not on June 30, as the calendar would say, but later, probably at the end of August, when Italians will still be distracted by the holidays and the center-right’s turn towards the hated Mes will be less evident to the radical electorate.

The unknown on the path of the premier remains Matteo Salvini, who after the death of Berlusconi has accentuated the polarization within the center-right. While the leader of the Brothers of Italy tries to win over the voters of Forza Italia and imagines a great agreement with the European Populars, the other is concerned with overtaking her to the right and nibbling among the anti-Europeanists. “Right now I prefer that the Italian public debt is in the hands of the Italians,” Salvini explained on Thursday. The Northern League leader cited “the 18 billion in investments collected from small investors” and the new government bond at a subsidized rate (“Btp Valore”) with a premium for whoever will hold it for four years. In Salvini’s narrative, the Mes is vice versa the instrument that would make Italy tied hand and foot to the decisions of the European institutions. But the matter is more complicated than that, and the note from the head of the cabinet of the Treasury Stefano Varone explained it precisely, which sent the center-right majority into a tailspin: it is possible that “ratification will lead to a better assessment of creditworthiness of the acceding Member States, with a pronounced effect for those with higher debt such as Italy”.

Here we need to underline an even more important fact that will worry the Treasury and Palazzo Chigi more and more in the future. According to the latest calculations by the Parliamentary Budget Office – the independent body that monitors public finance trends – this year Italy must place 432 billion of new debt on the markets against 316 in 2022. It is the consequence of the end of the long season of the replacement of the European Central Bank, which since the pandemic has bought all the public securities that the market was unable to absorb. It is true that the spread of BTPs on the German Bund has remained quite low in recent months thanks to the very prudent budgetary policy imposed by the Meloni-Giorgetti tandem. But despite this, in the coming years Italy will have to pay an increasing amount of interest on its debt: 75 billion this year, 85 next year, 91 and 100 in 2025 and 2026 respectively. One hundred billion is the value of a year of public health or of two from the entire school sector.

The yield differential between Italian and German securities – the most solid in the euro area – is the best thermometer of sovereign risk. Well, if you look at the trend of the last few days in detail, you have a plastic representation of the markets’ attention to the contortions of politics. On 16 June, the Italy-Germany spread reached its lowest level in the last year at 152 basis points. Between the 20th and 21st, when the Foreign Affairs commission was convened to discuss the motion of the oppositions on ratification, the yield rose steadily to 164, almost ten per cent of the previous week. The success of the bond issues among Italian savers is a reassuring sign, but in the eyes of investors – whoever they are – the full functioning of the State-saving fund is the guarantee against any financial risk that Italy alone would not be able to to hold.

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