Italy Teeters on the Brink

[OFSO]

The ECB has turned down both the Italian government's plea to bail out the Monte dei Paschi bank, which needs €5 billion of new capital by the end of December, and the government's plea for an extension of the debt past that date. Creditors include 40,000 Italian households who own €2.1 billion of the debt, including pensioners who no doubt were assured that their investments were cast-iron solid. Since the entire banking system is at risk, Italy asked for legislation breaches permitting state bailouts; again the ECB said no. (Surprise, surprise).

Interestingly not only 35% of all Italian bank bonds are held by households, but in Belgium the figure is 30%, Austria, Cyprus, Lithuania and Malta also have a large percentage of bank bonds held by households. In the UK, following past disasters (Northern Rock, Bradford & Bingley, the Co-op, and West Bromwich) and ensuing regulation, there is a less-than-minimal private exposure to bank bonds.

The IMF says that if Italy does (somehow - not clear how) bail out the Monte dei Paschi bank, their GDP will not recover until after 2025. As Italy is the eurozone's third biggest economy, the failure of international banking attempts to prevent another national banking collapse would be a 'disaster'.

PS: Italy's Five Star Party, which has called for a referendum on membership of the euro, yesterday urged the government to breach EU rules and bail out the bank with taxpayers' money.

PPS: The EU moneybox, the German economy, is also turning in less-than-rosy figures. See my report elsewhere. So not a good idea for Italy to turn up in Berlin with begging-bowl in hand next year.

Source: FT, the Times, etc.

[Capetonian]

Italy has been teetering on the brink for decades. Maybe the EU will push them over it. Maybe this will presage the implosion of the artificial political currency which is behind so much of Europe's distress.

[Slasher]

[bbvideo=560,315]https://m.youtube.com/watch?v=6aZ0JYy2IIc[/bbvideo]