Renzi insists Italy take out ESM loans, leading to a showdown with Prime Minister Conte. extended

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ROM (Reuters) – Former Prime Minister Matteo Renzi on Tuesday insisted that Italy should apply for a loan from the euro area bailout fund and warned current Prime Minister Giuseppe Conte that he would be ready to sink his government if he refused.

FILE PHOTO: Italian Prime Minister Giuseppe Conte, wearing a protective face mask, gestures as he speaks during a press conference about the government’s new anti-COVID-19 measures over the Christmas period, amid the coronavirus disease (COVID-19) outbreak persists. at the Chigi Palace in Rome, Italy December 18, 2020. REUTERS / Remo Casilli / File Photo

Renzi has been threatening to withdraw the two ministers of his tiny Italia Viva party from cabinet for months, creating political chaos in Italy as it struggles to contain the COVID-19 pandemic.

Renzi’s complaints had centered on Conte’s plans to spend billions of euros promised by the European Union to revitalize Italy’s troubled economy, and the showdown was expected at a cabinet meeting on Tuesday to approve the so-called reconstruction plan.

In an interview with state television on Tuesday, however, he said that the recovery plan had improved thanks to pressure from his party and that his eyes were on the question of a loan from the EU bailout fund.

The rescue fund, known as the European Stability Mechanism (ESM), offers countries up to 36 billion euros in cheap loans to strengthen their health systems.

“We have made a few steps forward, but something is missing and that is called ESM,” said Renzi.

However, with free grants available from the EU Recovery Fund, no country has shown interest in an ESM loan as it is wary of increasing its national debt and stigmatizing the market of borrowing could be linked from a rescue fund.

The largest coalition party, the anti-establishment 5-star movement, is strongly opposed to the idea, and Conte has so far supported their position.

RISING BOND SERIES

The market’s reaction to the crisis has so far been subdued, largely thanks to the large purchases of Italian assets by the European Central Bank. However, Italian bond yields rose 10 basis points on the Tuesday leading up to the cabinet meeting, the strongest daily increase since early November.

Renzi kept Italy in suspense on its next move, saying he and its ministers would hold a press conference on Wednesday after cabinet approves the recovery fund. At 11:40 p.m. (22:40 GMT) the cabinet meeting continued.

Italy Viva, a center party, has less than 3% of the vote, but their support in parliament is vital to the survival of the coalition led by the 5-star and center-left Democratic parties.

Renzi blamed Conte for the crisis and said he was already trying to lure opposition lawmakers into a majority to take the place of Italia Viva.

“If you want us to stay in government, you have to at least listen to some of our ideas,” he said, calling for more spending on infrastructure and job creation rather than income subsidies.

Italy’s 172-page economic stimulus plan has plans to spend around 223 billion euros in EU funds over the next six years. The final draft before the cabinet on Tuesday met Renzi’s demands that more go into health care and education than in previous drafts.

Renzi said if Conte agrees to apply for an ESM loan, his party in the cabinet would vote for the stimulus plan, otherwise it would abstain.

One possible scenario for Italia Viva resigning would be that all coalition parties renegotiate a new pact that would almost certainly pave the way for a major cabinet reshuffle, with or without Conte at the helm.

If the coalition can’t agree on a way forward, then President Mattarella would almost certainly seek to put together a government of national unity to tackle the health emergency that killed nearly 80,000 Italians and the economic crisis.

If that fails, all that remains is a national vote.

Additional reporting by Giuseppe Fonte and Crispian Balmer

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