Rome's plans to save banks with tax money

The bank crisis looming over Europe is a delayed after-effect of the 2008 financial crisis and the ECB's low-interest policy, the daily paper Trud concludes:

“The European economy and in particular its banking system never solved the problems that led to the financial crisis of 2008-2009. They were simply swept under the carpet. It was clear that these problems would reappear as soon as the next big shock for the EU came along. The huge volume of bad debt in Europe, which probably already exceeds a trillion euros, weighs heavily on the European banking sector. These loans, combined with the ECB's low-interest policy, are chipping away at the European banks' earning capacity. The banks are facing an impasse because on the one hand they must raise their capital to correct their balance sheets, but on the other hand they are not in a position to generate the money they need to finance this increase in capital.”

The EU banking rules provide for financial institutions to be bailed out with tax money if their collapse has the potential to trigger a large-scale crisis. But saving individual banks is like trying to put out a fire with a watering can, Il Sole 24 comments:

“Europe's politicians, inspired by Berlin, believed the banking union would solve the problem. … The times of state aid, a measure both the French and the Germans resorted to in the first years of the crisis, were supposed to be over. But it's not that simple, and once again the problem is not just an Italian problem. The banks can no longer secure fresh money to bail themselves out on the markets. As necessary as targeted actions are to prevent a systemic crisis, such actions don't tackle the problem at its roots. A growth policy is needed here.”

Berlin in particular is to blame for the fact that after Greece, Italy too is now immersed in a financial crisis that threatens to engulf the entire Eurozone, economist Jacques Sapir writes on his blog RussEurope:

“Sooner or later the time to pay up comes. After rejecting the principle of solidarity for the Eurozone, Germany imposed its own vision of the rules. Now, however, it has realised that this vision is untenable for the countries of Southern Europe. So it's stuck between the suicidal pursuit of a policy that doesn't work and recognition of its past mistakes. What makes the problem all the more serious is that Italy is far weightier than Greece. It's clear to everyone that Italy's leaving the Eurozone would spell the end for the single currency. The Greek crisis of the summer of 2015 was just the appetiser: the Italian crisis will be THE crisis of the Eurozone.”

Eurogroup President Jeroen Dijsselbloem has rejected the plans for a bank bailout programme. He said on Monday in Brussels that the problems must be dealt with within the banks. He's very wrong on that score, La Stampa replies angrily:

“This is not a conflict between the disciplined North and the lax, squandering South. Both as regards the banks and the national budgets it is the entire European decision-making process that is not working. … When Eurogroup head Dijsselbloem depicts Italy as a country seeking to have the rules bent so that its bankers can receive gifts at the taxpayers' expense, it means he hasn't got a clue. … A set of rules as such serves as a guarantee. The problem is that those rules can prove to be inadequate to the challenges of unforeseen events and can have the opposite of the desired effect. … Both the bank resolution rules and the Stability Pact were based on predictions that there would be a rapid return to growth. That hasn't happened.”

The ECB itself is responsible if the rules of the banking union are broken in order to recapitalise Italian banks, Kurier criticises:

“The European Central Bank (ECB) is responsible both for monetary policy and for bank supervision. Zero interest rates make life difficult for the banks, and at the same time the ECB has known since a stress test in autumn 2014 that certain Italian banks have too little capital at their disposal. Instead of forcing them to restructure or making them leave the market, ECB Vice President Vítor Constâncio is now calling for public money to be used to capitalise the tottering banks. That breaches the rules of the new banking union and does nothing to boost confidence in the functionality of the ECB.”

The Italian government's plan to prop up the country's ailing banks with tax money is a step in the right direction, Kaleva believes:

“The Italian government's course is understandable. The collapse of the country's major banks would create a dangerous situation. Moreover, the crisis could trigger an even greater panic in Europe. … Finland recapitalised its banks with tax money 25 years ago. With the exception of the savings banks all the banks repaid the money. Without this support the damage would have been far worse. Rules are rules, even in the European banking union. But it seems that once again the rules are incompatible with reality. So the rules should be adapted. If the Italian plan for bailing out the banks can prevent another banking crisis in Europe, Italy should be allowed to help the banks as much as is necessary to keep the crisis under control.”

Renzi's proposals for solving the Italian bank crisis are selfish and would endanger the credibility of the European financial system, El País angrily comments:

“Renzi wants to reform the ruined banks with tax money and shield the creditors, major depositors and shareholders from bearing their share of the costs. … In the end Renzi wants to avoid having to pay the price (adjustment programme, etc.) of a bank bailout. Italy's plan is a lot of nonsense backed by a few weak voices that are using the Brexit shock and the hypothesis that the tumult created by a bailout could help Beppe Grillo's party win more votes to defend the idea of special treatment. If an exception is made for Italy then it should also be made for Portugal. And that would mean destroying all trust in Europe's financial system.”

Even if it's in Berlin's interest to bend the rules Chancellor Merkel will remain firm for the sake of the elections, Corriere della Sera suspects:

“Avoiding making the creditors of the Banca Monte dei Paschi di Siena bear some or all of the costs of saving the bank would leave Merkel vulnerable to attacks from the right in Germany. The Alternative for Germany party would accuse the chancellor of torpedoing the European rules meant to enforce discipline and protect the Germans' money. With just over a year to go before the parliamentary elections, this is a price Merkel and Schäuble aren't willing to pay. It will make little difference to them that a less stringent approach in Europe could shortly help the German government resolve the growing problems of the country's regional banks and the Deutsche Bank. Right now the chancellor and her finance minister clearly prefer to make Renzi bear the political consequences.”