Bank of Italy head says wise to be ready for state aid for banks

The Siena branch of Italy's most troubled bank, Monte dei Paschi. [asburff/Flickr]

Italy has asked for more time to sell four small savings banks it bailed out last year, the European Commission said on Friday (29 September), saying it was open to the request.

“It is wise to get ready for the idea of state aid even if that does not mean it will be necessary,” Visco told the newspaper.

State aid for Italian banks is something that should be considered even if it remains a remote possibility, Bank of Italy Governor told Italian daily Il Foglio today.

“The Commission is in close and constructive contacts with the Italian authorities regarding the prolongation of the sale deadline for four Italian bridge banks,” Commission spokesman Ricardo Cardoso said in an email.

EU readies contingency plan for possible Monte Paschi wind down

European Union authorities are making contingency plans for the possible winding down of Banca Monte dei Paschi if the Italian lender has a poor reading in stress tests this week and no private or public support is available, an EU official said.

“The Commission can see good reasons to accept a postponement,” he said.

Troubled Italian lender Banca Monte dei Paschi di Siena has agreed with the European Central Bank a new restructuring plan based on a €5 billion capital boost and the sale of € 28 billion worth of bad loans.

Italy promised the European Commission to sell Banca Marche , Banca Etruria, CariFe and CariChieti.

But there is growing concern it may have to turn to the government for support.

Asked about foreign investors buying into Italian banks, Visco said the nationality of shareholders was not important but rather “their capacity to guarantee stability”.

The central bank head said the constraints on Italian budgetary policy were due to the country’s high public debt and not to European rules.

Independent economists say Italy will struggle to hit even the revised targets given weak domestic demand and the crisis facing the country’s debt-laden banks.

Beware of Italy’s banking crisis

The looming banking crisis in Italy spells trouble not just for Europe’s fourth largest economy, but also for the EU and an already sputtering global economy, writes Jacob Shapiro for Geopolitical Futures .

The OECD club of industrialised countries is predicting 0.8 percent growth for both this year and next.

Prime Minister Matteo Renzi said Italy’s budget deficit would fall to 2.4% of GDP this year, from 2.6% in 2015, and a maximum of 2.0% next year.

The latter figure is slightly above the 1.8% target Italy has been set by the European Commission, which is urging Rome to cut year-on-year spending faster to reduce a debt mountain equivalent to more than 132% of the entire economy.

And the 2016 budget deficit rate of 2.4% is a slight upward revision from the original forecast of 2.3%.

Renzi said Italy would be seeking only limited ‘flexibility’ in the interpretation of EU budget rules – equivalent to a maximum 0.4% of GDP in the assessment of its spending plans to cover the exceptional costs of the migration crisis and the deadly August earthquake in the centre of the country.

“Europe owes a serious debt to Italy,” for its handling of the migrant crisis, said Renzi.

Italy launches €5 billion fund to help weaker banks

Italian financial institutions have agreed to set up a €5 billion fund to shore up weaker banks, in a state-orchestrated plan to avoid a crisis in the eurozone’s fourth-biggest banking sector.


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