Minister of Finance Sigrid Kaag has indicated to the ECB that she does not want to see the ECB buy up Italy's government debt. In a broadcast of BNR Nieuwsradio, Casper de Vries, Professor of Monetary Economics at Erasmus School of Economics, is a guest to explain the situation.
Kaag warned the ECB that the possible aid programme to Italy should stay away from monetary financing. An interest rate increase has been announced: because of the fear of too large an interest rate difference between some southern and northern European states, a new instrument was subsequently announced to prevent this. De Vries says that it is risky for an institution like the ECB to announce such an instrument in advance. The ECB is in a difficult position: on the one hand, Italy must be helped without Italy explicitly requesting help, on the other hand there is little room for this. According to De Vries, Italy's high national debt is the problem, but the Italians are too proud to implicitly acknowledge that by asking for help.
European Stability Mechanism
Since 2012, there has been a construction, the European Stability Mechanism (ESM), which can help states if they are in trouble. However, there are conditions attached to this assistance. There are two programmes: state debt can be bought up, and assistance can also be requested as a precautionary measure. De Vries argues that it would be wisest for Italy to apply for a credit line as a precaution. This is politically interesting, because the ESM and the ECB can jointly determine what conditions are attached to a credit line. This means that there is room to negotiate favourable conditions. In conclusion, according to de Vries there is no need to create a 'new' instrument, as adequate solutions are already possible through the ESM.
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You can listen to the broadcast of BNR Nieuwsradio, 5 July 2022, here.
