RELATIONS between Germany and Italy are set to hit breaking point, if Berlin’s steps in to rescue Deutsche Bank, after blocking Rome from doing the same earlier this year.
The leader has reportedly begged Germany to let him loan cash to Italy’s banks, as investors have increasingly lost confidence in the institutions, which are saddled with billions of pounds worth of bad loans.
In particular, Italy’s oldest bank Monte Dei Pasche has looked close to collapse several times this year, and Mr Renzi is still trying to secure a £4.2billion (€5bn) cash injection from investors for the lender.
But it’s thought Berlin has so far been unyielding and told Mr Renzi that he must abide by new EU rules, which mean savers and small investors must take a hit before governments are allowed to use taxpayer money for capitalisation.
Such a move would have been akin to political suicide for the Italian prime minister.
Now Germany is faced with its own banking crisis, as investors flee Deutsche Bank amid concerns it can’t afford a looming fine from US authorities.
Berlin also made a huge faux pas when it fanned the flames of the fire with claims that it would not provide state assistance.
The situation is particularly embarrassing for the German government, which has long lectured other eurozone countries over how to deal with financial crises.
Despite the bravado, experts say there is no way Mrs Merkel can let Deutsche Bank go to the wall, because of its size and exposure, the lender could take down the entire eurozone banking system if it were allowed to fail.
It’s thought Mr Renzi is now hoping that Germany will bailout Deutsche so that he can do the same for Italy’s banks, which are still in an extremely vulnerable position.
Full article: Italy set for SHOWDOWN with Germany over Deutsche Bank’s rescue package (Express)