Governments didn't act when they could, and current rules where agreed by Italian administrations. Short summary of a useless European debate
by Emanuele Bonini
Italy and the banking sector, a long never-ending story started many and many years ago. It is difficult to establish when exactly everything had origin and started, but it can be said (and it must be) that when there was the possibility to act, Italy didn't. What are talking about? Italy has a problem with non-performing loans, which means Italian banks have debtors not able to repay the loans or in conditions close to impossibility of repaying. In other words, the Italian banking sector has been experiencing an exposure to a liquidity crisis.
This is something not new, and the European Commission in its latest Country Specific Recommendations (CSR) pointed out that «the stock of non-performing loans remains at a very high level» in Italy, asking the Italian authorities to «accelerate the reduction in the stock of non-performing loans». Currently this amount is approximately 200 billion Euro or 12% of Italy’s GDP. Already in the 2015 CSR the EU Commission warned that «since the end of 2008, the non-performing loan ratio of the Italian banking sector has sharply increased, mainly in relation to banks’ corporate exposure», asking Italy to «accelerate the broad-based reduction of non-performing loans». This shows the debate over banks in Italy is not a new one.
Having said that, let enter more into detail regarding the Merkel-Renzi confrontation. During the first ever European Council meeting without a British leader, the German chancellor was asked about the banking sector of Italy, where the Italian prime minister Matteo Renzi is reasoning on the possibility to freeze the European rules on «bail-in». Current rules don't allow public direct interventions, which means governments can't pump liquidity in the banking sector. Merkel clearly said that «we cannot renegotiate every two years the rules of the banking sector». What does this declaration mean? In 2014 new rules on banks where agreed under the so called BRRD directive, the European directive on bank recovery and resolution. According to these rules, approved by all the EU Member States, the «bail-out» era is over. What does «bail-out» mean? It means that in case banks are in difficulty or crisis, government can intervene by recapitalizing the bank with public money. New rules introduce, on the contrary, the idea of a «bail-in», which basically means that in case of banking turmoil it's up to private (bondholders, and depositors) repay the liabilities of the bank in order to recapitalize the affected institution.
Renzi recalled the past, when Germany saved its own national banking system by using public money. German government (so Mrs. Merkel) decided to intervene in order to avoid a crisis of liquidity, and all that was done by injecting taxpayers money. This is exactly what Italy is thinking to do, with the great difference of not having the same conditions in place to do it. When Germany saved banks with public intervention, this possibility was foreseen. So Germany acted in line with the European rules. The point is: why Italy didn't do the same? Why the Italian authorities didn't act when they had the possibility?
There is another aspect to talk about. In all major Italian banking crisis a totally unsustainable (and often fraudulent) management of institutes was proved. So, what did the national authorities, included the one in charge of supervising banks, do? Apparently nothing, or too little. So, the only guilty possible is in Italy.
Responsibilities are Italians, and they are also outside the national context. In fact, why did Italy approved the rules contained in the BRRD directive? Also in this case problems are not in Europe, problems have to be searched in Italy. And here let's to be clear: Europe doesn't exist. The European Union is not a federal structure. On the contrary, it is on organization of sovereign States. That means decisions are taken by national governments. There are no central powers, so blaming Europe is nothing but the way for national governments to hide their failures, as the case of Italy is.
In conclusion, what is the matter? Italian authorities knew about the problem in the baking sector, they didn't do anything when they could intervene; they negotiated and agreed rules forbidding national interventions; and to close the circle they are now complaining on all this when it's clearly too late and all on the Italian shoulders. So, what can be said about the political dialogue in progress? Nothing but Merkel is right. Full stop.
Who is the one to blame for the Italian problems in the national banking sector? And who is the one to blame for the rules in place? Say Merkel, if you wish. Say Europe, if you prefer. In both cases, you will be wrong.
By saying the Italian system is not in troubles, Renzi lies and he knows perfectly for what we have said at the beginning. The high level of stock of non-performing loans doesn't put Italy in a safe situation. By saying he doesn't want to change the rules, Renzi is an half-lier. BRRD rules foresee the possibility of special public direct intervention (articles 56 and 58 of the directive), but for limited situation and following the case by case approach. So, Renzi is trying to push for flexibility even in the banking sector. It is not a mystery that current rules don't help Italy to deal with the structural problem the country has with credit institutions. The only possible story to talk and write about is this. All the rest is just entertainment.
Italy and the banking sector, a long never-ending story started many and many years ago. It is difficult to establish when exactly everything had origin and started, but it can be said (and it must be) that when there was the possibility to act, Italy didn't. What are talking about? Italy has a problem with non-performing loans, which means Italian banks have debtors not able to repay the loans or in conditions close to impossibility of repaying. In other words, the Italian banking sector has been experiencing an exposure to a liquidity crisis.
This is something not new, and the European Commission in its latest Country Specific Recommendations (CSR) pointed out that «the stock of non-performing loans remains at a very high level» in Italy, asking the Italian authorities to «accelerate the reduction in the stock of non-performing loans». Currently this amount is approximately 200 billion Euro or 12% of Italy’s GDP. Already in the 2015 CSR the EU Commission warned that «since the end of 2008, the non-performing loan ratio of the Italian banking sector has sharply increased, mainly in relation to banks’ corporate exposure», asking Italy to «accelerate the broad-based reduction of non-performing loans». This shows the debate over banks in Italy is not a new one.
Having said that, let enter more into detail regarding the Merkel-Renzi confrontation. During the first ever European Council meeting without a British leader, the German chancellor was asked about the banking sector of Italy, where the Italian prime minister Matteo Renzi is reasoning on the possibility to freeze the European rules on «bail-in». Current rules don't allow public direct interventions, which means governments can't pump liquidity in the banking sector. Merkel clearly said that «we cannot renegotiate every two years the rules of the banking sector». What does this declaration mean? In 2014 new rules on banks where agreed under the so called BRRD directive, the European directive on bank recovery and resolution. According to these rules, approved by all the EU Member States, the «bail-out» era is over. What does «bail-out» mean? It means that in case banks are in difficulty or crisis, government can intervene by recapitalizing the bank with public money. New rules introduce, on the contrary, the idea of a «bail-in», which basically means that in case of banking turmoil it's up to private (bondholders, and depositors) repay the liabilities of the bank in order to recapitalize the affected institution.
Renzi recalled the past, when Germany saved its own national banking system by using public money. German government (so Mrs. Merkel) decided to intervene in order to avoid a crisis of liquidity, and all that was done by injecting taxpayers money. This is exactly what Italy is thinking to do, with the great difference of not having the same conditions in place to do it. When Germany saved banks with public intervention, this possibility was foreseen. So Germany acted in line with the European rules. The point is: why Italy didn't do the same? Why the Italian authorities didn't act when they had the possibility?
There is another aspect to talk about. In all major Italian banking crisis a totally unsustainable (and often fraudulent) management of institutes was proved. So, what did the national authorities, included the one in charge of supervising banks, do? Apparently nothing, or too little. So, the only guilty possible is in Italy.
Responsibilities are Italians, and they are also outside the national context. In fact, why did Italy approved the rules contained in the BRRD directive? Also in this case problems are not in Europe, problems have to be searched in Italy. And here let's to be clear: Europe doesn't exist. The European Union is not a federal structure. On the contrary, it is on organization of sovereign States. That means decisions are taken by national governments. There are no central powers, so blaming Europe is nothing but the way for national governments to hide their failures, as the case of Italy is.
In conclusion, what is the matter? Italian authorities knew about the problem in the baking sector, they didn't do anything when they could intervene; they negotiated and agreed rules forbidding national interventions; and to close the circle they are now complaining on all this when it's clearly too late and all on the Italian shoulders. So, what can be said about the political dialogue in progress? Nothing but Merkel is right. Full stop.
Who is the one to blame for the Italian problems in the national banking sector? And who is the one to blame for the rules in place? Say Merkel, if you wish. Say Europe, if you prefer. In both cases, you will be wrong.
By saying the Italian system is not in troubles, Renzi lies and he knows perfectly for what we have said at the beginning. The high level of stock of non-performing loans doesn't put Italy in a safe situation. By saying he doesn't want to change the rules, Renzi is an half-lier. BRRD rules foresee the possibility of special public direct intervention (articles 56 and 58 of the directive), but for limited situation and following the case by case approach. So, Renzi is trying to push for flexibility even in the banking sector. It is not a mystery that current rules don't help Italy to deal with the structural problem the country has with credit institutions. The only possible story to talk and write about is this. All the rest is just entertainment.
No comments:
Post a Comment