PowerSwitch

News Analysis: Italy may be next to request EU bailout

ROME, June 12 (Xinhua) -- Italy, the eurozone's third largest economy, could possibly seek a bailout from the European Union (EU) following Spain's rescue appeal on June 9.

The Italian financial newspaper Il Sole 24 Ore believes the agreement reached by eurozone finance ministers to shore up Spain's teetering banks represents "the removal of a filter" that separated Spain and Italy from the group of heavily indebted EU countries.

Don Quijones wrote: The Commission has also stipulated that only “solvent” banks are eligible for the “precautionary” scheme, as if Italy, where banking stocks have fallen by a mind-blowing 54% in just the last six months into penny-stock territory, is just brimming with banks that are perfectly solvent but would nonetheless appreciate the kind offer of new funds they can’t use.

The scheme is clearly a desperate ruse, but if it can temporarily convince enough voters, investors, and bank depositors that things are not quite so bad in Italy anymore, that the banks finally have something of substance — and not just unusable, inaccessible funds — backstopping their €360 billion worth of non-performing loans, it will have served its purpose.

Yves Smith wrote: The danger of a bail-in is it is a one-size-fits-all approach guaranteed to cause bank runs. A “bail in” means that rather than using new money to restore bank equity, shareholders are wiped out then junior creditors if needed, and enough of the remaining creditors are forcibly turned into shareholder. As Fazi points out, it’s a potentially useful tool but a terrible idea as a forced solution. For instance, the first time bail-ins were used was in Cyprus. Those banks had little in the way of borrowed money, so it was depositors who took haircuts. In the case of Spanish banks, many depositors had been persuaded to invest in equity-like instruments that they were falsely told were the same as deposits. That puts them near the head of the line for taking losses in the event of recapitalization. In Italy, some banks have apparently resorted to similar chicanery, but not on the scale that took place in Spain. However, many consumers are investors in bank bonds, so they would be hit in the event of a bail in. And given the Cyprus precedent, a bail-in of any size should scare depositors, and will lead them to move deposits from weak banks to stronger ones, creating liquidity stress and even bank runs.

It’s not as if Italian officials are ignoring this risk; they’ve proposed implementing a good bank/bad bank structure, and sought emergency relief so they can exceed Maastrict deficit limits to assist their banks. They were told in effect that their problem was not an emergency and they need to follow the unworkable bail-in regime. Renzi was rebuffed by Merkel when Italy tried again in the wake of the Brexit vote, arguing that the situation had become more dire. Merkel insisted that Italy needed to follow the new rules.

johnhemming2 wrote:A comparison of what happens in the UK is not irrelevant to the thread.

Before Raggi, a government-appointed commissioner ran Rome for nine months. Marino, from Renzi’s Democratic Party, had been forced out over a scandal that included allegedly billing the city for a dinner with the Vietnamese ambassador that never took place. His downfall and Renzi’s inability to counter Raggi with a convincing candidate portend growing problems for the ruling party. A poll released in July by researcher Demos found that Five Star would win a majority in Parliament if elections were held today. Renzi’s popularity will be tested in October, with a referendum he proposed on reducing the Senate’s powers and streamlining the legislative process. If it fails, he’s said he’ll quit, leading to “months of political instability,” says Giovanni Orsina, a government professor at Rome’s Luiss-Guido Carli University. “That would make Italy a problem for Europe once again.”

euronews
“There is a gap between giving populist speeches and governing a nation.”
Beppe Grillo
“We want to govern, but we don’t want to simply change the power by replacing it with our own. We want a change within civilisation, a change of world vision.

“We’re talking about dematerialised industry, an end to working for money, the start of working for other payment, a universal citizens revenue. If our society is founded on work, what will happen if work disappears? What will we do with millions of people in flux? We have to organise and manage all that.”

raspberry-blower wrote:Beppe Grillo interview: Political amateurs re conquering the world

euronews
“There is a gap between giving populist speeches and governing a nation.”
Beppe Grillo
“We want to govern, but we don’t want to simply change the power by replacing it with our own. We want a change within civilisation, a change of world vision.

“We’re talking about dematerialised industry, an end to working for money, the start of working for other payment, a universal citizens revenue. If our society is founded on work, what will happen if work disappears? What will we do with millions of people in flux? We have to organise and manage all that.”