ROME (Reuters) – Italy’s ruling parties failed to reach an agreement on Friday over a planned reform of the euro zone’s bailout fund, a prominent lawmaker said, as Rome frets about the impact the changes could have on the country’s massive public debt.
A draft reform of the fund, known as the European Stability Mechanism or ESM, was agreed on by euro zone finance ministers in June and is due to be finalised by their leaders next month.
But Italy, with a public debt equivalent to 135% of its gross domestic product, is concerned about proposals that would make it easier to restructure sovereign bonds in the event of a financial crisis.
The parties – and other institutions – are arguing over whether Rome should try to block the reform at the EU level.
Conte said on Tuesday that Italy would only approve the reform if it was part of a broad package of changes, while Italian media have said the government may seek to delay and eventually veto the reform.
“We haven’t struck an accord yet. There will be other meetings,” Luigi Marattin of the Italia Viva (Italy Alive) party told reporters at the end of a meeting with Prime Minister Giuseppe Conte over the issue.
“I do not think there will be a delay, we’ll certainly find a common agreement.”
He said Italy’s main concern was to make sure that sovereign bonds do not lose their status as risk-free assets.
Italy’s public debt is proportionally the highest in the euro zone after that of Greece, and its sustainability is often questioned at times of rising bond yields. If its sovereign bonds are no longer treated as risk-free, yields would almost certainly climb.
Italy’s banking lobby ABI said this week that if the ESM reform or other changes to current rules worsened market conditions, lenders “will buy fewer Italian sovereign bonds”, which would drive yields higher.
At the end of September, Italian banks held around a sixth of the national debt – some 400 billion euros ($440 billion).
(Reporting by Giuseppe Fonte; Writing by Giselda Vagnoni; Editing by Hugh Lawson)