Wednesday

1st Apr 2020

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).

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or join as a group

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.

No breakthrough at EU budget summit

EU leaders failed to reach agreement on the EU's long-term budget, as richer states and poorer 'cohesion countries' locked horns. The impasse continues over how to fund the Brexit gap.

EU leaders struggling to break budget deadlock

Cuts to innovation, space, neighbourhood and other programme-spending push down the latest budget proposal on the table of EU leaders. Rebates could stay on, to win the support of the net-payers for a deal.

News in Brief

  1. Danish conservatives want Orban party kicked out of EPP
  2. Dutch finance minister repents on virus help
  3. France to house domestic violence victims in hotels
  4. Europe sends medical goods to Iran, despite US embargo
  5. Commission sets consultation on raising 2030 climate target
  6. 12-year old Belgian girl dies of coronavirus
  7. EU commission: no 'indefinite' emergency measures
  8. Denmark plans 'gradual' return to normal after Easter

Vietnam sent champagne to MEPs ahead of trade vote

A trade deal with Vietnam sailed through the European Parliament's international trade committee and after its embassy sent MEPs bottles of Moet & Chandon Imperial champagne over Christmas.

Feature

Promises and doubts: Africa's free-trade adventure

The EU is hoping that a continent-wide free trade agreement in Africa will help lift millions out of poverty and help solve issues of security and migration. But its message of values and equal partnership do not resonate with everyone.

Stakeholders' Highlights

  1. UNESDAMaking Europe’s Economy Circular – the time is now
  2. Nordic Council of MinistersScottish parliament seeks closer collaboration with the Nordic Council
  3. UNESDAFrom Linear to Circular – check out UNESDA's new blog
  4. Nordic Council of Ministers40 years of experience have proven its point: Sustainable financing actually works
  5. Nordic Council of MinistersNordic and Baltic ministers paving the way for 5G in the region
  6. Nordic Council of MinistersEarmarked paternity leave – an effective way to change norms

Latest News

  1. Without European patriotism, EU decline is inevitable
  2. EU cancels April Fool's 'fake news'
  3. A coronavirus 'Marshall Plan' alone won't be nearly enough
  4. Trying to think straight about coronavirus
  5. Berlin ready to airlift Greek island refugees
  6. Von der Leyen criticises Hungary, but fails to mention it
  7. Air pollution drops in Europe, but how long will it last?
  8. Human rights abusers don't stop for virus, MEPs tell EU

Join EUobserver

Support quality EU news

Join us