Italy’s Conte Calls for Joint Debt in Preview of EU Summit Clash

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Italian Prime Minister Giuseppe Conte renewed his call for joint euro-area bonds to aid economies crippled by the coronavirus, setting the stage for a clash at a European Union summit this week.

Conte evoked the risk of market contagion if European leaders fail to act on pressure from Italy and Spain, according to an interview with Germany’s Sueddeutsche Zeitung. He said the European Stability Mechanism Fund rescue fund, Germany’s preferred tool to address the economic impact, “has a bad reputation in Italy.”

“Our economic systems are connected with each other and interlinked,” Conte was quoted as saying in the interview published Sunday. “When one country has problems, it triggers a domino effect and that’s something we should absolutely avoid. What’s needed here is the European Union’s full firepower — namely through the joint issuance of bonds.”

As European Union leaders prepare for their virtual summit on Thursday, Conte is under pressure to obtain relief for an economy stricken by anationwide lockdown, while countering pressure from populists in and outside his government who are lambasting the EU’s response.

On another front, senior European Central Bank officials are advocating for a euro-area “bad bank” to take toxic debt off lenders’ balance sheets, the Financial Times reported Sunday. ECB officials have held talks about the idea with counterparts in Brussels, according to the report.

Conte said it’s not about pooling past or future debt but rather about “an extraordinary effort” to deal with the current situation, according to Sueddeutsche.

Klaus Regling, the ESM’s director-general, said concern that the fund’s lending will have two parts — one to specifically deal with the outbreak and the other to reduce budget deficits — was misplaced.

“I think that that’s a misunderstanding,” he told Italy’s Corriere Della Sera newspaper. “The conditions agreed at first will change during the period of which the line of credit is available. The Eurogroup will clarify it, saying that the only requirement for obtaining the loan is the way in which they spend the money.”

Italy’s anti-establishment Five Star Movement, the biggest force in Conte’s coalition, has long campaigned against ESM credit lines as carrying a stigma and requiring unacceptable loan conditions. Opposition leader Matteo Salvini of the anti-migrant League, who has criticized the EU for failing to step up for Italy, also has denounced the ESM.

“I’m fundamentally skeptical toward the ESM as well,” Conte told Sueddeutsche.

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