Monday

20th Feb 2017

Italy proposes 'semi-automatic' funding to avert bail-out

  • Italy's 10-year bond has climbed to 6.06 percent (Photo: Giampaolo Macorig)

Debt-stricken Italy is pushing for a "semi-automatic mechanism" to lower eurozone countries' borrowing costs compared to Germany in a veiled admission that it is also heading for a bail-out.

"The idea is to possibly discuss at the Eurogroup/Ecofin this week mechanisms which would be triggered semi-automatically when spreads widen too much, with the aim to reduce them," Italy's EU affairs minister Enzo Moavero told reporters in Brussels on Monday (18 June).

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

He said the idea was on the table for talks among eurozone finance ministers (the Eurogroup) on Thursday in Luxembourg.

Amid continued uncertainty about Greece and bleeding banks in Spain, Italy has also seen its borrowing costs soar. Its 10-year bond has climbed to 6.06 percent on Monday, while Germany's bunds are trading at record low rates.

Meanwhile, Spanish 10-year bonds are being sold at even higher interest rates - almost 7.3 percent - above the seven-percent threshold that pushed Ireland, Portugal and Greece to ask for state bail-outs.

The European Central Bank (ECB) last year helped out Spain and Italy by buying their bonds and later by injecting €1 trillion in cheap loans to banks, which to a large extent used the money to also buy government bonds.

Both actions were reluctantly agreed by Germany's central bank, which fears an inflation boom and is sceptical that the "quick fixes" will work in the long term.

Having a "semi-automatic" ECB mechanism would most likely be against the no direct bail-out clause for governments enshrined in the ECB mandate.

The other option - having the yet-to-be-set-up European Stability Mechanism (ESM) intervene automatically to help out governments under market pressure is also tricky, since any disbursements have to be approved by the German parliament.

But at the same time concerns are growing that if the crisis spreads to Italy and Spain - two core EU economies - neither the eurozone's ESM "firewall" nor the recently augmented International Monetary Fund will be big enough to bail them out.

According to Bank of America, Spain may need a second, full-blown bail-out on top of the €100 billion recently earmarked for its banks. This would push the total loan to €450 billion. Italy would need even more, as it has €1.2 trillion in outstanding debt.

Emerging economies such as China, Brazil and Russia have agreed to boost their contributions to the IMF warchest, although with more modest sums than initially envisaged.

A total of €340 billion in fresh money has been committed, almost half of which comes from the eurozone countries themselves. The US, the main IMF contributor, has refused to pay any extra money.

Italy denies need for bail-out

Italy's Mario Monti has said his country does not need a bail-out, even though its borrowing costs have soared amid contagion from Spain.

Spanish and Italian borrowing costs soar

The cost of insurance against a Spanish default reached another record on Monday, with Italy's borrowing costs also rising sharply amid market fears about the eurozone.

Merkel under pressure to move on Spain and Italy

With borrowing costs in Spain and Italy at unprecedented highs, Germany's Angela Merkel came under pressure at the G20 summit to let eurozone bail-out funds help them out.

EU ready to challenge US border tax

The EU is willing to fight any attempt by the Trump administration to impose border tax on imports, says trade commissioner Jyrki Katainen.

Opinion

Unfair EU-Canada trade deal is wrong response to Trump

The EU-Canada trade deal, which is to be voted on in the European Parliament next week, cements the inequalities, political exclusion and favours to corporations that feed far-right groups in Europe.

Visual Data

EU farming policy: The damage done by 20 years of inertia

The EU Commission will ask the public later this week how the common agricultural policy should be overhauled. Data from the past two decades reveals a catalogue of missed chances and failed reforms.

Stakeholders' Highlights

  1. Malta EU 2017End of Roaming Fees: Council Reaches Agreement on Wholesale Caps
  2. Nordic Council of MinistersNordic Innovation House Opens in New York to Help Startups Access US Market
  3. Centre Maurits CoppietersMinorities and Migrations
  4. Salzburg Global SeminarThe Child in the City: Health, Parks and Play
  5. UNICEFNumber of Ukrainian Children Needing Aid Nearly Doubles to 1 Million Over the Past Year
  6. Centre Maurits CoppietersThe Situation of Refugee Women in Europe
  7. Salzburg Global SeminarToward a Shared Culture of Health: Charting the Patient-Clinician Relationship
  8. European Free AllianceAustria Should Preserve & Promote Bilingual and Multinational Carinthia
  9. Martens CentreShow Your Love for Democracy! Take Part in Our Contest: "If It's Broken, Let's Fix It"
  10. CISPECloud Computing Leaders Establish Data Protection Standards to Protect Customer Data
  11. Malta EU 2017Landmark Deal Reached With European Parliament on Portability of Online Content
  12. Belgrade Security ForumBSF 2017: Building a Common Future in the Age of Uncertainty