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Italy’s teetering banks will be Europe’s next crisis
- Red_Tarsius 10y agoThe Economist has often badmouthed Italy. The title is way too sensationalist. The comment section also highlights this ethnic bias. I will never forget their insulting cover from years ago: http://static.fanpage.it/socialmediafanpage/wp-content/uploads/2013/03/Grillo-Berlusconi-Economist-300x225.jpg http://static.fanpage.it/socialmediafanpage/wp-content/uploa.... Just clickbaits and provocations.
- danielvf 10y agoIf not Italy, what do you think would be Europe's next couple economic crisis countries?
- yulaow 10y agoHere in EU, ironically, the talk these weeks is about German Banks... yeah, I too was surprised. https://www.theguardian.com/business/2016/feb/10/deutsche-bank-germany-financial-colossus-stumbles https://www.theguardian.com/business/2016/feb/10/deutsche-ba...
- im3w1l 10y agoAgreed. February, when your article was published, isn't these weeks though.
- yulaow 10y agoMy bad, I just linked the first article I found. They are talking about it a lot in the news in TV, especially after Brexit
- phee 10y agoAs far as I can understand DB troubles aren't that urgent, but this way Germans believe they're the ones needing bailout so Merkel can get away with saving MPS without losing much consent.
- collyw 10y agoThe UK while it still remains. They have managed to push housing affordability to levels not seen since the last crisis. Rather than try to solve the problem, governments have done everything they can to keep things like they were before. http://www.thisismoney.co.uk/money/mortgageshome/article-3678511/Property-hits-levels-unaffordability-not-seen-financial-crisis-house-prices-rise-3k-June.html http://www.thisismoney.co.uk/money/mortgageshome/article-367...
- leoc 10y agoTo be honest, that cover looks like a perfectly fair and accurate assessment of both men.
- sremani 10y agoI really do not have context about Italy and Economist, but this issue has been predicted and talked about by others. Here is one of them. https://geopoliticalfutures.com/italy-and-systemic-failure/ https://geopoliticalfutures.com/italy-and-systemic-failure/
- wsc981 10y agoI fear the EU will use the (huge) Dutch pension funds to bail out Italy. Just last week the Dutch parliament hurriedly accepted EU regulations that allow the Dutch pension funds to move to other EU countries, which would put them out of scope of Dutch (strict) regulation and could possibly be used in the future by the EU to bail out countries like Italy. One way to achieve this would be by requiring a certain percentage of funds be invested in bad bonds. More surprising was that Germany decided not to accept these EU regulations for pension funds, which makes some wonder why the Dutch did accept. Most surprising of all was that all parties in the government promised during last elections that Dutch pension funds would stay under Dutch control. And almost all opposition parties shared the same view. I.e. almost all broke their election promises, which makes no sense at all, unless EU priorities are regarded as more important than Dutch priorities.
- bonzini 10y agoJust FYI, there has never been any need to bail out Italy, unlike Greece, Spain, Portugal, Cyprus and Ireland.
- vkou 10y agoIf these pension funds are throwing large amounts of money into a dangerous market, that would solely be the fault of Dutch pension fund managers. There are plenty of other non-Dutch instruments they can, and should be investing in.
- davidw 10y agoYou're saying that cover is insulting to clowns? Having lived most of the past 15 years in Italy, I think a lot of the criticism is justified.
- toomuchtodo 10y agoWhat do you think the likelihood is of a run on Italian banks? I'm curious if you're average Italian citizen is aware of what a supposed bail in would subject depositors to (anything above a certain euro amount would be wiped out, such that occurred in Cyprus as one of the links in this thread notes).
- pmontra 10y agoThe limit is 100k Euro. There is a fund to save deposits under 100k if a bank collapses. The problem is that there is no enough money to save every single depositor under 100k if enough banks are in trouble. That in Italy and everywhere else.
- mseebach 10y agoThat limit either was, or was very close to being, ignored in Cyprus. You'd be foolish to bet €100k on that limit being hard if the shit hits the fan in Italy (which is a lot bigger than Cyprus and doesn't have anywhere near as much dirty Russian money they can grab instead). Also, the limit is for nought if Italy leaves the Eurozone and your savings are forcefully converted to "New Lira" (which are then "protected", but worth a lot less). TL;DR: If you have cash in Italian banks, GTFOASAP. If you're a "good guy", buy hard Italian assets (perhaps property), so the money (perhaps) stays in the country, otherwise, get an offshore account (even if declared, and thus perfectly legal, it's much less likely that the Italian government will be successful in grabbing the money, especially if you pick a non-EU jurisdiction, but IANAL).
- bonzini 10y ago> If you have cash in Italian banks, GTFOASAP That makes no sense at all. Just don't keep cash and invest everything except for a small contingency fund.
- jomamaxx 10y agoIt doesn't matter. The facts are the facts and the Italian banking system is in big trouble.
- tremon 10y agoFacts are never facts when the topic is economic forecasts.
- diego_moita 10y ago> highlights this ethnic bias They've done that to a lot of British & American politicians. They've been harder on Trump than they were on Berlusconi. And face it, both Berlusconi and Grillo were professional "pagliacci".
- jcranmer 10y agoThere's just been three digs at Berlusconi on the NA cover (plus another on the EU cover that wasn't on the NA cover that I'm aware of)--one of which was nothing more than an addition on the bill of bailouts of Eastern Europe saying "Silvio to go (if only)". In 1998 alone, there are 5 digs at Clinton over the Monica Lewinsky scandal. Three in 2000 at Bush, and several more over the course of the presidency (to be fair, Bush kinda was an easy target for this sort of stuff)--and they endorsed him. Vladimir Putin has also been a sore point for them (Vlad the Impaler all the way back in 2003? I'd forgotten Putin's been around that long...). The 2008 Super Tuesday issue had Mike Huckabee shaking hands with a pig in a field of mud. That's not counting the number of world leaders or potential world leaders they hate... which tends to round to about all of them. The Economist doesn't try to represent facts neutrally, but rather finds something to criticize about everything (even things they like, usually because it's not as far as could be gone) to exhort people to do what they think people should be doing. Sure, Berlusconi has had it a lot, but that's because he's the rare example of a (to them) incompetent leader actually gaining power and keeping it for a long time. If someone like Trump or Le Pen or Farage were to be elected, you'd see equally, possibly more, relentless negative coverage of them. Hell, they're still appalled that Trump actually won the nomination.
- aphextron 10y ago>In 1998 alone, there are 5 digs at Clinton over the Monica Lewinsky scandal. Three in 2000 at Bush, and several more over the course of the presidency (to be fair, Bush kinda was an easy target for this sort of stuff)--and they endorsed him. Vladimir Putin has also been a sore point for them (Vlad the Impaler all the way back in 2003? I'd forgotten Putin's been around that long...). The 2008 Super Tuesday issue had Mike Huckabee shaking hands with a pig in a field of mud. I think this is more of a general British attitude than The Economist in particular. You see a lot of the same kind of stuff from the BBC. Arrogant, anglo-centric, looking down the nose at anyone foreign.
- choult 10y agoThe BBC is clearly doing a pretty good job at being unbiased (as per its mandate) as _everyone_ thinks it's biased against _them_. In reality, in an attempt at balance, the Beeb generall gives too much time to fringe views, often lending the appearance of legitimacy to them. (cf. Their climate change coverage up until fairly recently)
- jkot 10y agoBanks have enough cash to cover 20% of their obligations. I think that is not that bad.
- SFJulie 10y agoThey have 20% of the deposit, but they are warranting the money of the financial assets they created. With lever effect, this account to 50 x more money. In France, banks systematically do all their possible to block customers to access the money from their life insurance contracts. There is as much fraud in bank industry in Europa as there is in food industry in USA.
- djschnei 10y agoGood ol' fractional-reserve banking. Wouldn't it be nice if we could all do that?
- selectodude 10y agoEver taken out a loan with nothing more than a down payment?
- djschnei 10y agoYes, in fact about $100k worth in order to learn about the very subject you're incorrectly making a snarky comment about! A down payment on a loan? That makes zero sense. I think you're talking about unsecured loans (i.e when there isn't an asset that can be repossessed if the debtor defaults). The fact that the loan is "unsecured" is precisely why the resulting interest rate will be higher. I am paying to borrow that money, and it's more expensive to borrow because of the increased risk assumed by the bank. However, fractional reserve banking is entirely functionally different.
- known 10y agoEuro is nothing but a https://en.wikipedia.org/wiki/Confidence_trick https://en.wikipedia.org/wiki/Confidence_trick
- s17tnet 10y agoThe whole western bank system is a confidence trick. Never head off fractional-reserve ? https://en.wikipedia.org/wiki/Fractional-reserve_banking https://en.wikipedia.org/wiki/Fractional-reserve_banking
- ZenoArrow 10y agoIt's worse than just fractional reserve banking. The vast majority of the money supply is based off debt. Would recommend watching the 4 minute introduction on the Positive Money homepage for a quick overview of the current situation with money creation: http://positivemoney.org/ http://positivemoney.org/
- blahi 10y agoThe world's population in the 1900 was 1,5B people. By 1970, it was twice that. By the year 2000, it was twice that again! And by 2050 it will be 9B. Where does the money for all those people would come from if not from borrowing (money from the future)?
- ZenoArrow 10y agoMoney does not need to be based on debt. Money is just a medium of exchange. There is no requirement for the creation of money to generate profit for the money creators, especially as the cost of creating digital money is near zero. If you want to look into it more, I'd suggest taking a look at debt-free money. https://en.m.wikipedia.org/wiki/Monetary_reform https://en.m.wikipedia.org/wiki/Monetary_reform http://positivemoney.org/2011/10/debt-free-money/ http://positivemoney.org/2011/10/debt-free-money/ http://positivemoney.org/2016/03/debt-free-money-brief-reply-randall-wray/ http://positivemoney.org/2016/03/debt-free-money-brief-reply...
- ensiferum 10y agoOh noes a bank is in trouble? Well not to worry, tax payers will gladly bail it out, while the bankers collect their bonuses and leave "for the next big challenge". Fuck I love banking.
- djschnei 10y agoYou're beef should be with government (crony-capitalism), not banking. A bank can't force you to bail it out, only government can do that. The "force" 100% resides with the government, not the bank.
- deleted 10y ago[deleted]
- jmspring 10y agoIt's all hearsay...but, an inlaw (wife's uncle) who passed recently had a lot to say about his native greece, the work ethic, and why he decided to stay in Germany (he and his wife did have a place in Greece). Those stories over the years dovetailed almost word for word with former colleagues who actually moved to Milan and other places in Italy to work. Personally, the US approach to work is kinda backward as are other areas, balance should be most important. But, the article and stories I've heard over the last 10 years just ring a bit. I know this is about banks, but the larger culture is at play -- just like in the US, Enron, Lehman, etc. were extremes of those values we espouse.
- guelo 10y agoIt’s easy for Merkel to insist that Italy has to strictly follow EU rules since she doesn’t have to win an Italian election. The Euro just seems like a complete failure. Giant economies are limping along with 20% unemployment, unable to recover 8 years after the recession. In contrast the US has managed an OK recovery, now closing in on full employment. The problem is that each EU national leader is accountable only to voters in their own country. When countries have opposite interests there’s no good way for resolving the disagreement. The only way it could work would be if Europe-wide economic policy were made by the European Parliament so that taxation and bank regulation would be made coherently across the continent by accountable representatives. But voters, probably correctly, want to maintain national control. But that makes the shared currency a noose.
- Hermel 10y agoIt would already help a lot if the European commission was democratically elected and if the European parliament was given the power to make laws. (It sounds like a joke, but the European parliament cannot propose new laws - even though that's the usual purpose of a parliament. It is the commission that proposes new laws in the EU.)
- LoSboccacc 10y agoIt would also help if richer nation wouldn't be able to poison the parliament votes by baiting and switch poorer countries (in the form of give us votes, well'send financial aid - see Germany Greece and for the next episode, Germany Turkey)
- vidarh 10y agoFor that to happen, Europe would need to go federal. You can't have a legislative parliament in the current system because it'd violate the constitutions of a large proportion of the member states to delegate sovereignty somewhere else. This is the big challenge. People complain about the lack of powers for the EU Parliament, but largely aren't willing to support a model that'd make it possible. This is also why the EU does not pass laws, and the Commission does not propose laws. It proposes directives, which can then be passed. It is still the national parliaments that passes laws, implementing the directives. This is because no EU organ has the power to legislate directly - to give them that power would require constitutional changes all over the place.
- basicplus2 10y agoEU now requires all member nations to enforce bail-in so ordinary depositors carry same risk as creditors of banks. America - Gone EU - Gone Canada - Gone New Zealand - Gone Australia - nearly gone - Turnbull was head of Goldman Sachs in Australia. All thanks to Goldman Sachs etc http://cecaust.com.au/releases/2014_03_20_Treasury_Bail_In.html http://cecaust.com.au/releases/2014_03_20_Treasury_Bail_In.h... http://cecaust.com.au/releases/2015_11_27_G20_Accepts_Bailin.html http://cecaust.com.au/releases/2015_11_27_G20_Accepts_Bailin... http://cecaust.com.au/releases/2016_01_06_EU_bail_in.html http://cecaust.com.au/releases/2016_01_06_EU_bail_in.html http://cecaust.com.au/releases/2016_03_22_Bail_In_PR.html http://cecaust.com.au/releases/2016_03_22_Bail_In_PR.html
- smcl 10y agoI don't understand what the "- Gone" lines are and can't relate them to the first part of your comment. Did you miss something out?
- basicplus2 10y agoThese countries now all have bail in legislated
- shoo 10y agoBe aware: the above links point to press releases from the Citizen's Electoral Council - this is the most batshit insane political party I am aware of in Australia. You don't get to print and distribute pamphlets talking about lizard people running the world and then get to be taken seriously.
- ultramancool 10y agoWhere do I get the lizard people pamphlets?
- basicplus2 10y agoif you follow the links within their articles you will find the hard evidence. even crazy people sometimes talk about true stuff too.
- fibo 10y agothe big problem in Italy are taxes, I pay 38%, but for more than 55k you pay 41%, how politicians pretend Italy can survive? In Switzerland you pay 16%.
- ktRolster 10y agoHow can Switzerland survive on 16%? That is my question.
- extrapickles 10y agoProbably by a higher percentage actually paying the 16%. I bet there are all sorts of tax doges that become worthwhile at 41%.
- znpy 10y agoIt's easy: every one is paying that 16%. Taxes can be low if everyone (no matter their size, big or small) pay them.
- vidarh 10y agoMore realistically it is because average income in Switzerland is about 2.5 times as high as in Italy. A 16% tax rate across the board in Switzerland is comparable to an across the board 40% tax rate in Italy, which is relatively in line with the actual tax rates in Italy, especially when considering that an overall poorer population may also result in substantially higher welfare costs.
- adventured 10y agoBasically like this (just an example): $100,000 income at 20% tax = $20,000 $35,000 income at 40% tax = $14,000 Switzerland's median income is between 2.5 and 3 times that of Italy. They have a smaller black market economy than Italy, so they're likely deriving a higher actual share of taxation out of it. Further, the 16% referenced isn't complete. If you cap out the federal income tax in Switzerland, it's more likely you're paying a total of closer to 25-30% in income taxes (depending on what part of the country you're in), between federal, cantonal and municipal income taxes.
- vegabook 10y agoahem...valuation / assets: JP Morgan: 9% Goldman Sachs: 7.1% BoA: 6.5% Santander: 3.5% Societe Generale: 3% BNP Paribas: 2.5% Unicredit: 1.5% Deutsche Bank: 1.0% Two lessons: US banks are much better capitalised in the eyes of the market, and it is Deutsche Bank, not any Italian bank, which appears to be the biggest risk to European (and global) banking systems. It has a balance sheet of 1.6 trillion, supported by a market equity valuation of only 16 billion. Deutsche also has a reported 55 trillion notional of derivatives exposure. Sources: Yahoo finance for assets as of 2015, Bloomberg terminal for latest valuation.
- DrNuke 10y agoNo smoke without fire but financial wars in the name of sacred principles are just the contemporary art of war.
- timwaagh 10y agoif italy gets into trouble the EU will just force its members to give up more sovereignity so it can deal with the issue. they will go along because only the EU would be strong enough. which is very bad for the populist nationalist exiteers who have been causing so much trouble lately.
- Shivetya 10y agowell therein lies the problem. they knew they could never sell that to the public so they created a union which explicitly allowed member nations a great deal of autonomy. Part of the BRexit and possible exits of the French and Dutch is because the politicians in Brussels are trying to end run that agreement and impose it. America had one super super advantage, it started out by rebelling against one nation and winning. Then the second advantage Europe never had made it easier to stick together, it has a common language. It also does not have hundreds of years of brutal wars between member states that Europe has experienced and experienced within just a few generations. So unless they really can convince countries to cede the majority of their sovereignty and go to the routes of states in the US there will always be strife and situations like this. I will say, the current restrictions and such they do have run contrary to allowing for any individual nation getting out of trouble without a lot help
- gg97 10y agoI am really amazed and frighten everytime I read anything about politics - economics on HN. So we see all this BS about "work less", "meditation", "how trees calm us down", etc. but in fact when you do read across the lines you only see a crowd of hypsters totally obsessed with economics, money-money-money, free market, productivity, basicaly : materialism as the holy grail. Allo ? Is there any European in these comments ? I mean, we all know the USA where a European colony from the XVI century, but the country as it is today seems to be born only 250 years ago, and maybe more acurately with the secession war and the yankees take over. That my friend is just nothing, dust in the wind, in the scale of history. So we have this bunch of unsocializes nerds IT guys asking for every European nation to give up their own culture and souveirgnty for a centralized Federal State, certainly in the model of the glorious USA, and if possible infeodated to it. What's the next move, maybe get rid of any state currency to go all the way with bs bitcoins ? France was born in 496 when Clovis was baptized as a catholic. Our history and culture is not about cars, movies, fast foods and Wall Street. Just come and visit to check it out and learn a few things about the history of the world. There is more than Banking and Wall street and metrics and GDP in life. Actually, let me correct this, these are all the things which are actually not Life. So just respect the right of a nation to exists as it is and to give to her childrend what her parents gave her since centuries. So Brexit is all in the rage now, great, the world is collapsing, maybe Germany will engage war with UK and laucnh a bunch of V2, who knows ? Bullshit. UK will go fine walking away, much better in fact that France and Germany are right now, our corrupted politics just fear that all the nations figures that sooner or later and ask to leave EU asap. LET ME REMIND ALL THE HN READERS OF SOMETHING RIGHT NOW : Brexit is no a unique event, some want not to remember that France, Netherlands and Ireland had their own "Brexit" moments and the EU did denied the rights of these people to leave. I urge you to refer to the 2005 french referendum about the EU constitution, who was rejected by the french people, just to have it passed a few month later by the parliament denying any direct democratic right to the nation. That went also in the Netherlands. And they made people of Ireland vote twice, just till they vote what they wanted them to. Please, do not make Europe another heartless Silicon Bullshit Valley with absolutely no history except the atrocious gold rush and the infamous tech boom. Facebook is not history, let us keep Pascal and Academie Française in lieu of Snapchat and Tinder, if you please, in the name of the french people. I said.