The reform of the Mes, what was once called “save-states” has been approved by all the member countries of the eurozone, except Italy. But what is the Mes, what does the reform foresee and why are the government and Parliament slow in ratifying it?
When is born the Mes
The European Stability Mechanism was established in 2012 through an intergovernmental treaty, following the effects produced by the financial crisis of 2008-2009, which caused the so-called “sovereign debt crisis” in Europe. Its fundamental function is to grant, under precise conditions, financial assistance to member countries which – despite having a sustainable public debt – have difficulty obtaining financing on the market. Conditionality – explains a detailed dossier from the Bank of Italy – varies according to the nature of the instrument used: for loans it takes the form of a macroeconomic adjustment programme, specified in a specific memorandum and is less stringent in the case of credit lines precautionary measures, aimed at countries in fundamentally sound economic and financial conditions but affected by adverse shocks.
The governance
The ESM is led by a “Board of Governors” made up of 19 finance ministers of the euro area who decide unanimously on all the main decisions (including those relating to the granting of financial assistance and the approval of memoranda of understanding ). It can operate with a qualified majority (85% of the capital) if, in the event of a threat to the financial and economic stability of the euro area, the European Commission and the ECB request urgent decisions regarding financial assistance.
The capital
The Mes has a subscribed capital of 704.8 billion, of which 80.5 was paid up; its lending capacity amounts to 500 billion. Italy has subscribed the capital of the Mes for 125.3 billion, paying over 14.
What does the reform foresee?
The proposal to reform the founding treaty intervenes on the tasks of the Mes and on the conditions necessary for the granting of financial assistance. There is no automatic sovereign debt restructuring mechanism and the intention is to reduce and prevent any defaults for countries facing temporary difficulties that can be resolved with loans or credit lines. One of the main innovations of the reform provides that the Mes can play the role of “backstop” of the Single Resolution Fund, a sort of parachute that would help prevent and contain the risks of contagion associated with possible banking crises. The reform clarifies that preliminary checks on the debt sustainability of the country requesting assistance are conducted with a “sufficient margin of discretion”.