MILAN (Reuters) - The head of Italy's ruling 5-Star Movement said on Saturday the government should not sign off on a reform of the euro zone's bailout fund until plans for a wider banking union became clearer.
The comments by foreign minister Luigi Di Maio could hinder plans by the 19 member states of the currency bloc to reach a political agreement on the reform of the European Stability Mechanism (ESM) reform this month.
The anti-establishment 5-star governs in coalition with the center-left Democratic Party (PD), which supports the reform. The domestic conflict could also risk a fresh crisis in the new government, which was formed only in September after the previous administration collapsed amid infighting.
"That treaty (ESM) needs many improvements. We can't expect Italy to sign up blindly... because it's just one part, there's banking union, bank deposit insurance," Di Maio told reporters at an event in the city of Matera in southern Italy.
Di Maio's comments have put the government in a difficult position as Brussels prepares to sign off on ESM reform.
Last week Economy Minister Roberto Gualtieri, from the co-ruling Democratic Party (PD), said negotiations on the reform were basically completed and it could not be changed.
The reform would give the ESM more powers to handle financial crises. It would increase the euro zone's monitoring powers over countries with economic imbalances and facilitates the restructuring of governments' debts in crises - a potential cause of higher yields for highly indebted nations.
The reform has proved highly contentious in Italy, with the hard-right League party challenging the government not to agree to it. The League, and some economists, say the ESM reform is dangerous because it makes it more likely that Italy could have to restructure its huge public debt, proportionally the highest in the euro zone after that of Greece.
In a separate statement on Saturday, Di Maio's staff said the 5-Star leader was working with his party to introduce "significant changes" to the reform.
Italian Prime Minister Giuseppe Conte is due to address the Italian parliament on Monday on the ESM issue.
(Reporting by Stephen Jewkes; Editing by Pravin Char)