New rules for banks put to the test
Monte dei Paschi, Italy’s oldest bank, is in dire need of new capital (NRC Handelsblad, 12-10-2016). Recent EU rules prevent saving banks with taxpayers’ money. One would think that Italian populists applauded that rule. But they don’t, because many shareholders are people with a small purse. Beppe Grillo wants to save them. I understand that, but should we applaud a fresh rule being diverted? EU member states are good at that as soon as their own interests are in peril. Italy is facing new elections, as are other EU countries. Populist parties are expected to produce spectacular results in 2017.
A new test for Europe
Here we have a new test for Europe. There are two possibilities. When the Italian government chooses to abstain the Banca and other banks will suffer, and consequently the rest of the economy. People may lose their pensions. This is all very sad, but a strong lesson is learned. The Netherlands will be hurt too, but we must stay firm. We are in favour of strict EU rules, especially since our Minister of Finance, Dijsselbloem, is president of the Euro group. Those rules are agreements between member states, not unilateral Brussels dictates. The second option is that Italy’s government helps out. The Italian state debt will rise, but the European Central Bank can buy the new debt. No one gets hurt? The necessary reform of Italy’s weak banks doesn’t come nearer and the other Euro countries suffer a high risk to experience a new banking crisis.
Euro-pause for Italy
I have a proposition. If the Italian government supports the Banca other Euro countries should demand Italy’s retreat from the Euro, at least temporarily. In that way a clear line is drawn and rosy promises of reform are not needed. In this way also, the ground is cut from under the feet of populists and our politicians will not be tempted to waver.