European banks, probably starting with Italy’s, are going to fail, you can tell just be the subterfuges the Europeans are using to make it look like they won’t fail. From Don Quijones at wolfstreet.com:
In today’s Europe, the most important rules are made to be bent, if not outright broken. So it goes with Italy’s blossoming banking crisis.
Earlier this week, Italy’s €40-billion bailout proposal was mercilessly scrapped by Germany, on the grounds that it contravened Europe’s new bail-in rules. Cue Plan B, as reports surfaced today that the EU had authorized the country to use “government guarantees” to create a “precautionary liquidity support program for their banks.“ The total amount currently doing the rounds is €150 billion.
That’s a lot of money, even by today’s inflated standards. In the initial bailout of Spain’s saving banks, in 2012, the EU provided Rajoy’s government with just €40 billion of fresh cash. If the latest reports are true, Italy just received almost four times that amount.
But did it, really? Does the money even exist?
After all, government guarantees are not the same as cash in hand. According to Reuters, the ECB’s latest move, which has received scant attention in the press, is more of a political stunt than a prudential one:
[The funds] won’t actually be used, and don’t solve banks’ main problem – capital holes. Instead, the aid has a secondary purpose: to show Prime Minister Matteo Renzi can do deals in Brussels…
Italy is using the panic from the UK vote to ask the European Commission to let it bail out its banks and skip state-aid rules. Getting the green light would provide an even bigger boost to Renzi’s chances in the referendum, yet the Commission may not approve such a flagrant bailout. As such, getting the go-ahead even on unused guarantees is a start.
The word “unused” is a curious choice of term, especially given that the same article stresses that the funds won’t “actually” be used, for the same reason that they would constitute illegal state aid and contravene the EU’s new bail-in rules. In other words, they will be unusable, which is surely a roundabout way of saying “useless.”
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.
Perhaps things might even improve enough to enable Italy’s Prime Minister Matteo Renzi to buck recent trends in Europe and actually win a national referendum, scheduled for October, which would allow him to ram though changes to the country’s constitution. If he doesn’t, it could, as Reuters warns, become a vote against him, or yet another against the European Union, and sink the government:
Banks’ collateral might then collapse if markets start to fear the radical Five Star Movement is about to win power and take Italy out of the euro zone. Fears of a bank run could escalate if Italian banks start to fail European Central Bank stress tests.
To continue reading: As Fears of “Bank Run” Escalate, Italian Banks Get €150 Billion Bailout of Empty Promises
