Splits in Italy threaten to derail euro-zone reforms
AFTER REPAIR work during the sovereign-debt crisis in 2009-15, further fixes to the euro zone’s architecture have been few and slow. Northern countries have been unwilling to assume cross-border risks, as long as debts and non-performing loans in southern ones were high. Now quarrels within one of those southern countries, Italy, threaten what little progress has been made.
Three reforms are on the table: beefing up the European Stability Mechanism (ESM), the euro zone’s sovereign-bail-out fund; setting up a common deposit-insurance scheme for banks; and creating a common euro-zone budget. On December 4th finance ministers discussed plans for further work on these “pillars”, which are supposed to be agreed by heads of state on December 13th. The meeting failed to clear up much. Among the plans to be signed off was a revisedESM treaty, but eleventh-hour opposition from Italy seemingly delayed that until early next year.
Planned reforms to the ESM include measures to boost support for both troubled banks and sovereigns. It will become the backstop for the zone’s bank-resolution fund. The rules for its precautionary credit lines, to which troubled countries can turn even before they lose access to financial markets, have been clarified. And to help countries with unsustainable borrowing to recover, new government-bond...