Red light from Italy: ESM reform for banks blocked - implications for the EU

Red light from Italy: ESM reform for banks blocked - implications for the EU

According to a report by www.t-online.de, Italy is blocking the planned reform of the ESM rescue fund for the 20 member states of the euro zone. With the votes of Prime Minister Giorgia Meloni's right-wing government camp, the Chamber of Deputies in Rome rejected ratification of the plans. The rejection means that the reform is unlikely to come into force at the start of the new year as planned. This primarily has an impact on the SRF (Single Resolution Fund), which is financed by the banks in order to be able to step in in the event of a major banking crisis.

The rejection of the planned reform of the ESM and thus the backstop for the SRF means that in the event of a crisis, the EU will not be able to provide funds to rescue banks if the crisis fund is exhausted. This “backstop” should come into force at the beginning of the year to ensure the banks’ solvency. The lack of a backstop means a greater danger for the banking sector in the EU and makes the path to a banking union more difficult.

Italy's rejection of the reform has already disappointed Eurogroup leader Paschal Donohoe, who wants to continue to support the reform. This highlights the serious impact that Italy's veto is having on the financial sector in the Eurozone. It remains to be seen how the EU and the affected countries will deal with this challenge and whether new negotiations and solutions will emerge.