..The major danger facing the UK economy now isn’t Brexit, but a systemic meltdown on European bond markets sparked by Italy. For months, this column has warned about the danger posed by the vast swathe of non-performing loans harbored by Italian banks ”“ amounting to over 15pc of all loans outstanding, close to a jaw-dropping 20pc of GDP.
Italy is in this mess partly due to financial mismanagement but mainly because, since adopting the single currency in 1999, the country’s GDP has barely grown. Constrained by a high-currency euro strait-jacket, Italy has stagnated, causing even responsibly extended loans to go bad.
With the cost of recapitalizing Italy’s main banks standing at around €50bn, this crisis should be manageable. Yet EU rules prevent any state bail-out prior to a “bail-in” ”“ that is, shareholders and bondholders taking a hit before any taxpayer backing. But that would mean millions of innocent Italian households lose considerable sums ”“ as uninsured depositors or owners of widely-held retail bank bonds.
Were that to happen, Italy’s Five Star movement, which has recently overtaken the ruling centre-Left party in opinion polls, could easily take power. Having just clinched mayoral seats in Turin and Rome, Five Star is resurgent ”“ not least due to its pledge to hold a referendum on Italian euro membership..
Read it all
[Liam Halligan] The Brexit vote is over and the UK is fine – let’s stop the negativity
..The major danger facing the UK economy now isn’t Brexit, but a systemic meltdown on European bond markets sparked by Italy. For months, this column has warned about the danger posed by the vast swathe of non-performing loans harbored by Italian banks ”“ amounting to over 15pc of all loans outstanding, close to a jaw-dropping 20pc of GDP.
Italy is in this mess partly due to financial mismanagement but mainly because, since adopting the single currency in 1999, the country’s GDP has barely grown. Constrained by a high-currency euro strait-jacket, Italy has stagnated, causing even responsibly extended loans to go bad.
With the cost of recapitalizing Italy’s main banks standing at around €50bn, this crisis should be manageable. Yet EU rules prevent any state bail-out prior to a “bail-in” ”“ that is, shareholders and bondholders taking a hit before any taxpayer backing. But that would mean millions of innocent Italian households lose considerable sums ”“ as uninsured depositors or owners of widely-held retail bank bonds.
Were that to happen, Italy’s Five Star movement, which has recently overtaken the ruling centre-Left party in opinion polls, could easily take power. Having just clinched mayoral seats in Turin and Rome, Five Star is resurgent ”“ not least due to its pledge to hold a referendum on Italian euro membership..
Read it all