On Wednesday, Italy’s Parliament approved a 20 billion euro bailout for its country’s banks.
Former Prime Minister Matteo Renzi had a different plan to save Italy’s banks, one that relied on the private sector. But international investors pulled out after Renzi resigned, following the failure of his referendum to centralize power earlier this month. And so, as some expected, the Italian government, now helmed by Prime Minister Paolo Gentiloni, had to step in.
The bailout will be used for several Italian banks. First and most immediately up: Monte dei Paschi, thought to be the oldest operating bank in the world, and Italy’s third largest lender — and likely in need of a bailout by the end of next week.
But the Italian crisis isn’t quite averted. There are still two fear factors for the new government in Rome.
First, while 20 billion is hardly chump change, it may not be enough. Ipek Ozkardeskaya, senior market analyst at London Capital Group, said Italian banks will require 52 billion euros to be saved. That is a good deal more than Italy’s lawmakers just approved.
Second, even before the referendum, economists feared that a “bail in” would force retail investors to shoulder the burden of a state solution. Bond holders are apparently already girding for losses. Under EU rules, government funds can’t be used if bond holders haven’t first taken a hit. Over 2 billion of Monte dei Paschi bonds are held by retail investors — that is, the proverbial little guy.
And those were the very people allegedly championed by the populist, euro-skeptic Five Star Movement, which led the campaign against the referendum. But Five Star has its own problems. On Wednesday, Reuters reported that the movement’s members are embroiled in conflict as to whom to appoint as leader. How very establishment of them.