Italy’s Conte Hits Back at Critics in EU Bailout Fund Spat

Chiara Albanese
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Italy’s Conte Hits Back at Critics in EU Bailout Fund Spat

(Bloomberg) -- Italian Prime Minister Giuseppe Conte hit back at opponents inside and outside his government, denying that he violated lawmakers’ demands by striking a deal on reforms to the European Union’s bailout fund.

Speaking at the lower house of parliament in Rome, Conte, a two-time prime minister, called accusations that he didn’t keep lawmakers up to date on the reform process “completely false.”

The premier, who heads an uneasy coalition of the pro-Europe Democratic Party and the anti-establishment Five Star Movement, said “all members of the previous government were fully aware about what was discussed at European Union level” when the agreement was struck in June.

Conte’s coalition has been locked in an increasingly bitter feud over the bailout fund, the type of arcane European Union issue which doesn’t usually raise political pulses in Italy.

The agreement brought in rules which “are advantageous for Italy,” the prime minister said Monday, as outbursts from opposition lawmakers in the chamber forced him to pause several times during his address.

Five Star leader Luigi Di Maio has been a fervent critic of the EU measure, as has his one-time coalition partner, Matteo Salvini of the League, now in opposition.

Italian bonds slid Monday, with 10-year yields climbing to 1.34%, the highest level in three months as Conte started his testimony.

Investors are wary that a breakup of the ruling coalition could herald the return of Salvini, whose tenure in the last government saw the yield spread with Germany soar to levels not witnessed since the euro-area debt crisis.

Among other things, the EU reform envisages strengthening collective action clauses, or CACs, which have been mandatory for sovereign bonds issued by euro-area states since 2013. The change would make it more difficult for small groups of creditors to block restructurings, as all euro-area member states commit to introducing single-limb CACs into new euro-area sovereign bonds issued starting from Jan. 1, 2022.

Conte said Monday that the reform does not entail automatic debt restructuring.

Di Maio, who’s also foreign minister, is scrambling to reverse his party’s decline in the polls, and may calculate that stoking tensions with his coalition partners by demanding changes to the reform could prove popular with voters.

The precise regulation related to single-limb collective action clauses is still to be agreed upon in the context of overall reform to the European Stability Mechanism, an EU official said. Changes in the CACs won’t pave the way for automatic debt restructuring, said the official, who asked not to be named discussing confidential deliberations.

(Updates with official in last paragraph)

--With assistance from John Ainger, Nikos Chrysoloras, Viktoria Dendrinou and Zoe Schneeweiss.

To contact the reporter on this story: Chiara Albanese in Rome at calbanese10@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, Jerrold Colten, Alessandro Speciale

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