Italy says ESM reform can’t be changed League threatens to sue PM

Italian Economy Minister Roberto Gualtieri said on Wednesday euro zone countries would probably sign off on a reform of the region's bailout fund in February, rather than next month as previously planned.

The reform of the fund, known as the European Stability Mechanism (ESM), has proved highly contentious in Italy, with the hard-right League party challenging the government not to agree to it.

Gualtieri told a parliamentary hearing the reform was substantially complete and could not be changed, triggering a furious reaction from the League.

Claudio Borghi, the League's economics chief, told the Chamber of Deputies that Prime Minister Giuseppe Conte must address Parliament on the issue, otherwise his party was ready to sue him.

“It is not possible that something of such great importance has been done without the full knowledge of Parliament... we want the president [Conte] here immediately, and if he does not come we will take him to court”, Borghi said.

Gualtieri insisted the reform carried no dangers for Italy, unlike a separate proposal to limit euro zone banks' exposure to a single sovereign and attach risk weightings to sovereign debt.

“The (ESM) treaty will probably be signed in February,” Gualtieri told the parliamentary hearing, adding that this would allow more time for thought compared with the original schedule.

While the ESM talks are basically concluded, Gualtieri told the Senate panel, Italy is still “negotiating hard” over some connected issues regarding euro zone financial reform.

The League and some economists say the ESM reform is dangerous because it makes it more likely that Italy could have to restructure its huge public debt, proportionally the highest in the euro zone after that of Greece.

Gualtieri dismissed this, while reiterating Italy's opposition to risk-weighting sovereign debt holdings.

“We are in favour of a mechanism of guarantees on bank deposits, which we believe should not be made conditional on changing the treatment of sovereign bonds held by banks,” he said.

“This, if it were introduced, could have negative effects,” he added.

Gualtieri addressed a frequently-voiced concern that introducing new conditions called “single limb collective action clauses” (CACS) in sovereign bond issues, as envisaged by the ESM reform, raised the risk of restructuring.

The CACs are intended to help prevent holdout investors blocking a debt restructuring to get a better deal.

“The new CACS do not increase the likelihood of a restructuring,” Gualtieri said. “Anyone who writes that the reform introduces automatic debt restructuring is saying something false”.