Italy: A Brewing Storm Within the EU

 

Over the last couple of years, the main challenge to EU cohesion has been Brexit, with the media sharply focused on the negotiations and all relevant developments. Since the release of the draft withdrawal agreement, largely perceived as a victory for the EU, those who support the European project and believe in a strong leadership from Brussels have projected confidence and optimism for the future. According to these voices, the divisions caused by the rise of nationalism and populism in the past years are healing, the relationship between member states is normalizing, while a future of stability and harmony awaits.

However, such a vision might prove naive, as it discounts a much greater risk to the EU than Brexit ever was: the political and economic powder keg that is Italy.

Are Italy’s Banks About to Explode?

Insight from January of 2016 for today regarding the Italian economic crisis:

 

Italian banking stocks saw another day of meltdown on January 19 as skittish investors were spooked by the country’s burgeoning toxic loan crisis. (GIUSEPPE CACACE/AFP/Getty Images)

 

How a banking crisis in Italy could reverberate around the world

The value of Italy’s third-largest bank has plummeted by 60 percent since the start of this year. There are signs many are pulling money out of Banca Monte dei Paschi, out of Italian banks, and out of Italy in general. Even if the nation is not hit by a banking crisis imminently, the dire situation in Italy’s banks and its whole economy could still cause a financial disaster in Europe that would reverberate around the world.

We’re not talking a Greece-type crisis here. Italy is the eurozone’s third-largest economy, and the eighth largest in the world. Its economy is over seven times the size of Greece’s. An economic collapse in Italy would put Europe in a crisis far, far worse than the ongoing Greece crisis.

A Time Bomb

ROME/BERLIN (Own report) – Following Italian Prime Minster Matteo Renzi’s defeat in Sunday’s referendum, Berlin is urging Rome to quickly form a “capable government” and resume its adjustment to the German model of austerity. “The economic problems have to be tackled at the roots,” said Jens Weidmann, head of Germany’s central bank, yesterday. German financial experts are floating the idea of a cabinet of technocrats, modeled on the Mario Monti government. Monti ruled for a year and a half beginning in November 2011, without having been democratically elected and initiated an austerity program considered extremely harsh. Time is pressing: the bank crisis, caused, to a large extent, by bankruptcies due to German austerity dictates, which has been festering in Italy for a long time, is threatening to escalate. The Monte dei Paschi di Siena tradition bank’s recapitalization planned this week is acutely endangered. It cannot be ruled out that its bank crisis could soon spread to other Italian credit institutions and to German banks.

Italy set for SHOWDOWN with Germany over Deutsche Bank’s rescue package

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.

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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.

Italy’s PM Unloads On Deutsche Bank’s Unfixable Problem: “Hundreds And Hundreds Of Billions Of Derivatives”

 

After a tumultuous week for Deutsche Bank which saw the DOJ demand a $14 billion settlement for the bank’s past RMBS transgressions, it was another bad day for the giant German lender, whose stock and contingent converts tumbled after the investing community realized that even a modest $5.5 billion final settlement would leave it perilously undercapitalized and likely scrambling to raise more cash.

As SocGen’s Andrew Lim calculated, Germany’s biggest bank would be “significantly undercapitalized” even if an eventual settlement with the DoJ can be covered by the bank’s reserves. Any settlement above €5.4 billion would imply a capital increase is needed just to pay the fine, he wrote.

SUPERSTATE OR OBLIVION: ‘Unsustainable’ EU told to merge or die by leading credit agency

THE European Union must immediately merge into a huge superstate or face fast approaching oblivion, a leading credit ratings agency has warned.

Standard and Poor’s (S&P) said only the rapid creation of a United States of Europe, run by a federal government in Brussels, can prevent the bloc from total collapse.

The only alternative, they say, is to roll back decades of political integration including the euro currency and return the project to its original status as a trading bloc.

Italy’s finance minister INCREDIBLY blames nation’s banking crisis… ON BREXIT

As said in the previous post about Italy, it’s convenient to blame others for your problem to keep the attention away.

 

BRITAIN’S vote to leave the European Union (EU) is to blame for the disastrous state of Italy’s banks – and not Rome’s heavily criticised policymakers – according to the finance minister.

Pier Carlo Padoan has sought to deflect attention from himself against allegations the Italian government could have prevented the country’s current banking crisis by laying fault with the Brexit vote, despite the financial crisis hugely pre-dating the referendum.

The minister said instability of several of the banks aren’t the cause of the turmoil now rocking the Italian financial system, reported German newspaper Spiegel.

ITALY ON THE EDGE: Italian banks face further losses as investor fears grow over debt

CONFIDENCE in Italy’s banks and the wider economy is falling apart, as investors continue to digest Britain’s vote to leave the European Union (EU).

Pointing to real fears over the future of the bloc, Europe’s top stock markets have failed to recover from the shock of the Brexit vote.

In stark contrast, Britain’s premier index the FTSE 100 has left its continental counterparts in the dust.

Italy’s Bank Bailout Fund Already One Third Empty After First Bank Rescue

When one month ago, Italy was scrambling to unveil a “last resort” bad bank bailout fund (which eventually received the name Atlante, or Atlas, for the Titan god who was condemned to hold up the sky for eternity, only in this case he is holding up Italy’s €360 billion in bad loans), many wondered why the rush? While the explicit purpose of the fund was to allow Italy to bailout insolvent banks without the involvement of the state which is expressly prohibited by the Eurozone, the scramble appeared erratic almost frentic, and was one of the reasons why Italian bank stocks tumbled in early February.

The question: “Does someone know something?”

Italian Banks Collapse, Short Sales Banned As Loan Loss Fears Mount

 

Italian bank stocks are crashing (with BMPS down 40% year-to-date) as Reuters reports that investors are growing increasingly nervous about how the sector will cope with lower interest rates and a 200 billion euro ($218 billion) pile of loans that are unlikely to be repaid. The broad banking sector is down 4% with stocks suspended, and in light of this bloodbath, Italian regulators have decided in their wisdom, to ban short-selling of some bank stocks (which has driven hedgers into the CDS market, spking BMPS credit risk).

Greek Contagion Spreads As Several Italian Bank Stocks Failed To Open

This is how fragile the entire EU system is. If Greece sneezes, Italy coughs. The EU at best might be able to handle a Grexit, although that doesn’t look likely as stated here many times before. Look for the markets to go through a lot of turmoil but Greece is here to stay, whether its within the EU or a newly formed United States of Europe currently underway. Almost all experts agree it’s too strategically important to lose to the Sino-Soviet axis.

 

While things have normalized since the open thanks entirely to the SNB’s aggressive EUR-buying, CHF-selling intervention (good to see that central banks have read the BIS’ report and have learned from their prior intervention mistakes), earlier this morning we got a snapshot of what happens if and when the SNB, and then the ECB itself, finally lose control when as a result of the Greek crisis the contagion promptly spread a few hundred kilometers west to Italy where as the WSJ reported, “several Italian banks failed to start trading on Monday as fears over a Greek debt default induced many investors to shed peripheral stocks, including Italian, with banks suffering the most.”

Italy Lenders Seen Cleansing Books Amid Bad-Bank Plans

(Bloomberg) — Italian banks, under pressure to bring their balance sheets in line with the European Central Bank’s health check, will probably set aside billions more for loan losses in the fourth quarter as the government considers a national plan for offloading their troubled assets.