The exit of junior coalition partner in the middle of the Covid-19 pandemic deals a blow to Giuseppe Conte’s government.

Matteo Renzi speaks to attendees after a news conference in Rome, Italy, January 13 2021. Picture: ALESSIA PIERDOMENICO/BLOOMBERG

Rome — Italy’s government led by Prime Minister Giuseppe Conte risks collapsing in the middle of the Covid-19 pandemic after a junior coalition partner pulled out on Wednesday.

Former premier Matteo Renzi said his Italy Viva party is quitting the coalition after attacking Conte for failing to do enough to tackle the country’s problems. Though the party is tiny, Conte relies on it to maintain his majority in parliament.

Renzi’s decision sparks a government crisis that could last days or even weeks, and has no clear solution in sight.

After accepting the ministers’ resignation, Conte could step down himself. That would likely trigger a new round of talks among parties and lead to another Conte government, a new premier or a technocratic administration. Snap elections, though a risk, appear unlikely for now.

‘Act of courage’

Pulling out at a such a crucial moment for the country amounts to “an act of courage”, Renzi said at a news conference in Rome. Conte’s government has not done enough to resolve problems from education to infrastructure, as well as the Covid-19 pandemic, the former premier said.

“We are not playing,” Renzi said, addressing critics who’ve accused his party of political posturing during weeks of build-up to the current crisis. “Democracy is not a reality show.”

Investors have reacted to the heightened uncertainty. German bund futures rose after the announcement, while Italy Treasury bond futures fell. The cost of borrowing for the Italian government has risen modestly in recent days on concerns of political instability.

The timing of the crisis for Conte could hardly be worse, with Italy battling a worsening pandemic and a recession. A cabinet meeting late on Wednesday was due to discuss new Covid-19-related restrictions, while on Thursday Conte is set to sign off on a plan to widen the country’s deficit by about €24bn.

Renzi said that his party is still willing to back plans for more deficit spending and any measures necessary to tackle the pandemic. He did not rule out a new government led by Conte but said Italy Alive won’t support any coalition including Matteo Salvini’s League, an anti-migrant, anti-EU opposition party.

Nicola Zingaretti, head of the ruling Democratic Party, said Renzi’s move was a “huge mistake”.

Presidential role

With Renzi’s two ministers now exiting the government, the focus turns to President Sergio Mattarella, who met with Conte earlier on Wednesday. The president’s role, largely ceremonial, also includes responsibilities for safeguarding the country’s political stability.

If Conte opts to resign, he could be given a mandate by Mattarella to try to forge a new alliance.

Alternatively, the premier could seek a parliamentary vote of confidence. But if he fails to win over enough centrist and unaffiliated legislators to replace Renzi’s Italy Alive, the government would become a caretaker administration with limited powers.

The existing coalition parties — including Italy Viva — could also try to revive their alliance under a different premier, such as former European Central Bank president Mario Draghi. They will probably explore a range of options to avoid a new election, as surveys show the Salvini-led center-right would likely win if the country is forced into a snap vote.

“The impact of Renzi’s move on Italy’s fragile economy will depend on what will happen next,” said Lorenzo Pregliasco, a political analyst at YouTrend. “A snap vote, the worst scenario for investors, remains unlikely at this stage.”

Renzi had been dialing up the pressure on Conte since late 2020, slamming the prime minister’s plans for managing and spending EU rescue funds. Renzi says the plan has been improved after his demands, but he’s been insisting on further conditions, including that Italy tap a European Stability Mechanism credit line for health spending.

“The real issue is, should we spend more money on health with the ESM?” Renzi said after his announcement on Wednesday.

Bloomberg

Source: https://www.bloomberg.com/news/articles/2021-01-13/italy-ministers-quit-coalition-putting-premier-conte-at-risk

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A radical transformation.  –Photographer: Vanden Wijngaert/Bloomberg

The European Union has a habit of disappointing when trying to design a joint response to an economic crisis. However, Ursula von der Leyen’s speech at the European Parliament on Wednesday about a pandemic recovery fund could well be one for the history books.

The Commission president outlined a 750 billion-euro ($825 billion) rescue program to help the bloc cope with the fallout from Covid-19. EU governments still have to agree to the plan, and some northern member states — especially the Netherlands and Austria — are likely opponents. But if the final deal looks even close to Von der Leyen’s proposal, it will mark a radical transformation of Europe.

The Commission plans to borrow the hefty sum on the financial markets and then distribute it to member states between 2021 and 2024, with those who’ve suffered the most economically getting the bigger share. The fund is the sum of many parts. Some 560 billion euros will pay for a “Recovery and Resilience Facility” that will go directly to governments. There will also be a 31 billion-euro scheme to support solvent companies that need temporary state aid, and 9.4 billion euros to prepare for future health crises.

Italy and Spain will be the biggest beneficiaries, while Germany will receive relatively little. The EU will pay back investors via its own budget over a long period — as much as four decades.

The fund breaks a number of EU taboos. First, it raises significantly the amount the Commission can borrow on the financial markets. These are not “euro bonds” in the classic sense of the word since individual member states will still have to pay their individual contributions to the EU budget, to be calculated by the relative size of their gross domestic product. The vehicle is also expected to be a “one-off” for the pandemic. However, it will be a very useful blueprint if the eurozone ever chooses to move closer to a much-needed fiscal union.

The second big change is that two-thirds of the money would be given away as grants. This is the most controversial part of the plan, and it risks being watered down in the forthcoming negotiations between member states. There will be strings attached too since governments will have to present reform programs to receive support. The extra spending will need to comply with EU-wide priorities such as technology investments and tackling climate change. But the generous provision of grants is a step change from the European Stability Mechanism, the euro area’s rescue fund, which only offers loans.

The final taboo to be possibly broken is on EU-wide taxation. The Commission has an eye on setting up new revenue streams, which could help to pay back investors, including environmental taxes and levies on multinational companies. This is the vaguest part of the plan, but potentially one of the most profound. It would create the seed of an EU Treasury, which could disburse its money where it sees fit.

Von der Leyen will have a tough time selling all of this to the so-called “frugal four,” which includes Sweden and Denmark as well as Austria and the Netherlands. They prefer loans because they fear some of this money will be misspent.

Countries in Eastern Europe have traditionally benefited from the bulk of the EU’s cohesion fund, but they’ve have had a relatively good pandemic so they won’t receive much of this new support. It will be interesting to see which way they lean. The proposal needs unanimous support, which will be hard to secure.

At least the Commission president can rely on France and Germany, the EU’s biggest beasts, who struck the breakthrough deal that paved the way for Von der Leyen’s proposal. Spain, Italy and other southern countries are obviously in favor since they’d get most of the money. For once, the political stars may be aligned. If so, 2020 might be remembered in Europe as more than just the year of the pandemic.

To contact the author of this story:
Ferdinando Giugliano at fgiugliano@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net

Source: https://www.bloomberg.com/opinion/articles/2020-05-27/eu-pandemic-recovery-fund-puts-europe-on-brink-of-historic-change

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After hours of talks on Thursday, representatives of 19 eurozone countries agreed to make €500 billion ($547 billion) available “immediately” to stimulate the EU economy as it struggles with the economic fallout of the ongoing pandemic.

“Excellent accord between the European finance ministers,” tweeted France’s Bruno La Maire.

EU heavyweights France and Germany had been working on a solution to address the economic consequences of the coronavirus pandemic, with EU finance ministers negotiating into Thursday evening.

Germany’s Finance Minister Olaf Scholz praised the decision as a “great day of European solidarity.”

He said that the plan provides “three strong answers” to the crisis, including aid to small and mid-sized businesses through the European Investment Bank, short-term work programs for the labor force, and loans to affected states through the European Stability Mechanism.

Credit lines to the European Stability Mechanism “will be available until the COVID-19 crisis is over” according to a draft document cited by Reuters.

Spain’s representative Nadia Calvino also said a “good deal” was reached and would provide a “triple security network for workers, companies, and states.”

Germany’s Merkel rejects “coronabonds”

The EU countries had been at odds on whether or not the loans should be conditioned on financial reforms. The EU states were also at loggerheads on how to finance the fund itself, with Italy, Spain, France, and other, mostly southern EU countries, wanting a joint “coronabonds” borrowing scheme that Germany, the Netherlands, Finland, and Austria opposed.

The ministers had been unable to come up with a solution at the marathon-length talks on Wednesday, reportedly due to the Netherlands wanting tougher conditions for member states to take cheap loans.

Read more:  Opinion: EU must address pandemic’s effects on economies

Pressure was on the Dutch government to accept the compromise solution presented by Berlin and Paris.

The European Investment Bank will now support EU companies with €200 billion in loans, according to Eurogroup chairman Mario Centeno. The EU leaders would try to have ESM crisis support operational in two weeks, he added.

Read more:  Coronabonds and the idea of European financial unity

Earlier on Thursday, German Chancellor Angela Merkel had rejected the joint borrowing initiative, telling members of her conservative political bloc there was no “political consensus” for it. However, she also told them she had been in contact with France’s Emmanuel Macron, the Netherlands’ Rutte and Italy’s Giuseppe Conte, saying that a compromise solution was “very close.”

dj/rc (AFP, AP, dpa, Reuters)

Source: https://www.dw.com/en/eu-ministers-make-breakthrough-on-coronavirus-economic-response/a-53080298

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