In Bleak Prognosis, Italy’s Financial Regulator Threatens EU with Return to a “National Currency”

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Because Italy’s banking crisis and other problems have not been solved.

By Don Quijones, Spain & Mexico, editor at WOLF STREET.

Nerves are fraying in the corridors of power of the Eurozone’s third largest economy, Italy. It’s in the grip of a full-blown banking meltdown that has the potential to rip asunder the tenuous threads keeping the European project together.

In his annual speech to the financial market, Giuseppe Vegas, the president of stock-market regulator CONSOB — a consummate insider — delivered a bleak prognosis. The ECB’s quantitative easing program has “reduced the pressure on countries, such as ours, which more than others needed to recover ground on competitiveness, stability and convergence.”

But it hasn’t worked, he said. Despite trillions of euros worth of QE, Italy has continued to suffer a 30% loss in competitiveness compared to Germany during the last two decades. And now Italy must begin to prepare itself for the biggest nightmare of all: the gradual tightening of the ECB’s monetary policy.

“Inflation is gradually returning to the area of the 2% target, while in the United States a monetary tightening is taking place,” Vegas said. The German government is exerting mounting pressure on the ECB to begin tapering QE before elections in September.

So, too, is the Netherlands whose parliament today treated ECB President Mario Draghi to a rare grilling. The MPs ended the session by presenting Draghi with a departing gift of a solar-powered tulip, to remind him of the country’s infamous mid-17th century asset price bubble and financial crisis.

For the moment Draghi and his ECB cohorts refuse to yield, but with the ECB’s balance sheet just hitting 38.7% of Eurozone GDP, 15 percentage points higher than the Fed’s, they may ultimately have little choice in the matter. As Vegas points out, for Italy (and countries like it), that will mean having to face a whole new situation, “in which it will no longer be possible to count on the external support of monetary leverage.”




This is likely to be a major problem for a country that has grown so dependent on that external support. According to the Bank for International Settlements, in 2016, international banks in particular those in Germany reduced their exposure to Italy by 15%, or over $100 billion, half of it in the last quarter of the year. ECB intervention helped plug the shortfall, at least for a while. But the ECB has already reduced its monthly purchases of European sovereign debt instruments, from €80 billion to just over €60 billion.

As the appetite for Italian government debt falls, the yields on Italian bonds will rise. The only market participants seemingly still willing and able (for now) to increase their purchase of Italian debt are Italian banks.

Over a two-month period, Italian banks increased their holdings of Eurozone government debt by €20 billion, with €12.3 billion of newly conjured funds poured into Italian debt alone, according to a joint study by the ECB and Jefferies International. It’s the highest increase since 2015, bringing Italian banks’ total holdings of Italian government debt to an eye-watering €235 billion. When rates begin rising on that debt, those same banks, many of which are already verging on insolvency, will begin bleeding new losses.

This is a ticking financial time bomb. As the FT recently reported, just about every solution hurled at Italy’s financial crisis has come to naught. That seemingly includes the latest plan-B which essentially involved securitizing billions of euros of toxic debt and spreading it as far and wide as possible, with the assistance of Wall Street banks. According to the FT, that plan has already “floundered.”

In the meantime, Brussels continues to dither over how to proceed with the bailout/bail-in of Italy’s most bankrupt big bank, Monte dei Paschi di Siena, which just announced new quarterly losses of €169 million. Other major banks, most notably Banco Popolare di Vicenza (BPVI) and Veneto Banca, are in similar dire straits. Once again, Italy’s regulators are urging caution over applying the EU’s bail-in rules to the exact letter of the law.

In his address, Vegas proposed introducing a safeguard threshold of €100,000 euros for the banks’ bondholders, many of whom are ordinary Italian citizens, with combined holdings worth some €200 billion, who were told by the banks that their bonds were a secure investment. Not any more.

“The management of crises may require timely intervention that is not compatible with the mechanisms in Frankfurt and Brussels,” Vegas added.

To get his point across, he issued a barely veiled threat in Frankfurt and Brussels’ direction — that of Italy’s exit from the Eurozone, a prospect that should not be altogether discounted given the recent growth of anti-euro sentiment and rising political instability in Italy. So he threatened: “Merely the announcement of a return to a national currency would provoke an immediate outflow of capital that would seriously jeopardize Italy’s ability to refinance the world’s third biggest public debt.”

That’s the ultimate threat: monetary sovereignty — its own currency — under very messy conditions. Let others pick up the pieces of the Eurozone. By Don Quijones.

Italy’s latest plan is just splendid: Selling securities backed by defaulted loans to NIRP refugees. Read…  Here’s Italy’s Latest Plan B Where Desperation Meets Insanity




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  49 comments for “In Bleak Prognosis, Italy’s Financial Regulator Threatens EU with Return to a “National Currency”

  1. John Doyle
    May 10, 2017 at 8:07 pm

    The value of monetary sovereignty it is now realised is much greater than previously understood. No one in their right mind, with the lens of hindsight, would have sold it out for a concept of a United Nations of Europe. The idea is great, but the execution was abysmal, and was done as guided by neo-liberalism, now seen to be a failure. An abysmal mix. The Uk sort of avoided it, only partly hamstrung by the Lisbon Treaty, but the Euro zone nations with its common currency is a road to trouble.
    So Italy should make the move to regain its sovereignty. Ley Europe figure what to do afterwards.

    • TJ Martin
      May 11, 2017 at 8:48 am

      Thats a nice sounding scenario in theory .. but in reality .. which has a nasty tendency to crush most theories under its weight … such a move would only prove to further weaken the Italian economy which by its own hand over the years due in part to corruption , over expansion etc has been heading down the road to self destruction while at the same time doing damage to an admittedly Dysfunctional EuroZone at a point in history what with Russia etc where damaging the status quo .. much as that may appeal to the ignorant masses .. will create a situation worse by ten fold than that which currently exists .

      Add to the above the reality that 20th -21st century Italy… politically and economically on the best of days has been nothing more than a barely controlled anarchy and the recipe for disaster you propose becomes even more obvious

      Suffice it to say … political or economic .. populist revolts , revolutions and uprisings .. not to mention obtuse theories and pie in the sky wishful thinking historically only serve to create anarchy and havoc leaving the door wide open for totalitarianism , despots and fascism to fill the void .

      Which is to say for any positive change to occur it must come from either the top or at the very least from the side . Because populism thru out history when allowed to rise ( temporarily ) inevitably becomes its own road to perdition

      History Mr Doyle .. history .. the adage that ” Todays mistakes and errors are yesterdays forgotten history ” coming to the forefront with each and every day .

      Which is also to say Mr Doyle .. as I’ve stated many times here and elsewhere … there are no simple answers to excessively complex problems the reality being that in the end those supposedly simple solutions will only create worse problems than they can ever claim to solve

      • nick kelly
        May 11, 2017 at 11:09 am

        Italy’s threat to the EU reminds me of someone threatening to commit suicide unless his demands are met.
        Draghi managed to pull Italy’s borrowing costs down to 2 % from 7%
        This is with the big gun of the EU standing behind Italian govt bonds.

        If Italy leaves the euro its banks collapse, obviously.

        So it returns to the lira- who would want them? They might not be money inside Italy, let alone outside. Note that prior to the euro, real estate was usually quoted in $US
        It would guarantee one thing for Italy- a massive dose of REAL austerity. All imports, including energy would be very expensive in terms of lira.

      • AJ
        May 11, 2017 at 4:33 pm

        so tired of hearing apologists for the ECB or the Fed with their old canard that any other way would have been worse

        • Shamus
          May 11, 2017 at 5:45 pm

          Right you are AJ! Since when has a negotiator managed NOT to get punched in the face by a bully? Things are falling apart fast, and by regaining sovereignty the hurt will come faster, but by allowing the EU to run your country-slow burn into the ground, they will, in the end, OWN all of your countries assets, and then, when you have no blood left to give, will allow you to collapse and become a complete satellite country under their command.

      • John Doyle
        May 12, 2017 at 2:58 am

        It’s not a simple answer, just a possible one. Sure the world is complex and profoundly complicated. But just as E=MC2 sounds simple it belies its an explanation for a difficult to understand concept.

        As to Italy always being a barely controlled anarchy, how would you know? I lived there for 11 years and the Italians are a tough minded, hard working people, maybe more so in the north than the south. They understand “l’arte d’arrangiarsi” better than most. That’s not a criticism.

        As you know I have discovered MMT. Modern Monetary Theory, and as you don’t understand, it is a simple concept but profoundly counterintuitive, particularly for those mainstream schooled in Fantasy economics.
        MMT says Italy must return to the Lira, because monetary sovereignty is a super important value no nation should sell out, and more so considering the scourge of neo-liberalism crushing the participating Euro zone population. With its Lira Italy can buy its debts and cautiously trade out of its impasse. It sure ain’t going to get better any other way!

      • nick kelly
        May 12, 2017 at 8:58 pm

        Over the past many months a number of people have tried to point out that having a printing press does not solve all problems although it may create them. The author you are addressing is fond of saying: ‘you can’t go broke in your own currency’

        True in a sense, a very limited sense. You and a buddy could print up a private currency, good for settlement of debts, internally, between yourselves.

        All African countries have their own currencies- many are completely, absolutely broke. Not only is the currency worthless for imports, it is only accepted as a last resort internally. Any substantial purchase: auto etc. will be priced in a hard currency.
        The poster child is Zimbabwe, that just kept adding zeros to the notes until space on the bill ran out. You can buy the 100 billion note at some coin dealers as a curiosity.
        Eventually the end game arrived- the product of the press could no longer pay for the paper and ink inputs.
        Since the collapse Zimbabwe has ‘dollarized’, officially adopted the $US as the medium of exchange and store of value.
        Has it surrendered sovereignty?
        Arguably, but it has a degree of sanity, everyday life, back.

        Persons fond of this sovereign currency solves all might wonder
        how Venezuelans felt when quiet recently a large supermarket announced over the PA that all prices had just been increased by 50 percent. There was a riot.

        • d
          May 12, 2017 at 11:10 pm

          “Has it surrendered sovereignty?”

          No it hasn’t, as it still has fiscal control.

        • Hiho
          May 15, 2017 at 1:29 pm

          Ofc, Zimbawe. There was high time somebody said Zimbawe.

          The real problem of this country is that the government has not taxed back the money it created. Besides, by now it is widely known and accepted that inflation would hit only when the whole productive capacity of the country is employed. Not a real problem in Italy right now.

          And last but not least. Italy and the other eu countries used to.have their own currency. Were they zimbawe or close to becoming it? No! So your argument does not pass the laugh test.

          I would suggest you just forget everything you learnt about economics at university. Just bullshit.

        • Hiho
          May 15, 2017 at 1:32 pm

          And let me guess, these people who warned against the printing press were banksters, or their pet academics, willing to keep their monopoly?

    • Maximus Minimus
      May 11, 2017 at 10:42 am

      Every soldier is smarter then the general after a battle, but imagine the opposite scenario.
      You have a bunch of countries busily trading with each other without borders and duties, and all using their national currencies. All it takes producers in one to gain a leg up on foreign competitors is to devalue the currency, which would be followed by others. The same with cutting taxes. A never ending downward spiral, and a source of acrimony.
      As you said, the idea was academically sound, the execution abysmal.

      There are cultures that practice prudence and planing, and there are such that are used to always cutting corners since the mother milk.

  2. Gershon
    May 10, 2017 at 10:48 pm

    Italy and Spain are too big to be bailed out.

    When they blow, the ECB can-kicking is over and the long-deferred financial reckoning day will arrive in all it’s glory.

    Be afraid, “investors” in the central bankers’ Ponzi markets and asset bubbles. Be very afraid.

  3. Realist
    May 10, 2017 at 11:02 pm

    The funniest thing after all is that the Italian problem is quite homegrown. Italy has allowed its industry especially small and middle sized companies to loose their competive edge, one key aspect is that the Italians did not realize what the rise of China and the rest of the far east did mean for Italian companies competing against them. And the Italian banking sector, that isnsomething special…. And add the dysfunctional Italian state and political system with endemic corruption everywhere, a very nice outlook for the future indeed. The printing press able to kick the Italian can down the road has not yet been constructed ….

    • TJ Martin
      May 11, 2017 at 9:05 am

      Close … but not quite . The real problem ..or at least the little of it we can discuss here due to the constraints of the digital world etc … is that Italy rather than focusing on what it does best… tried to go head to head with China , Germany ( VW-Audi specifically ) then exacerbating the situation by foolishly trying to expand its reach ( FCA ) as well as over homogenizing its industries rather than doing that which Italy does best ( craftsmanship elegance style passion ) which one else ( other than the French ) can compete with . Then add in the reality that modern Italy has been selling itself off by the lire left and right … and on the best of days politically is nothing more than a barely controlled and constrained anarchy riddled with corruption both on a local and national level and there you have it … the more accurate albeit barely complete picture .

      Suffice it to say .. for such a small country Italy is a bevy of complexity the likes of which most Euros never mind Americans are barely capable of comprehending . And how do I know this you may ask ? My roots go deep .. very deep indeed .. both in Italy itself as well as the Italian region of CH

      Ecco .. va bene .. basta . ciao 8-)

      • Maximus Minimus
        May 11, 2017 at 2:13 pm

        Elegance, style, passion cannot be patented, and are copied easily and sold as fakes.
        Craftsmanship, maybe? I own a few Italian hiking boots, and are very well made, and still made in Italy.

  4. d
    May 11, 2017 at 12:10 am

    “In his address, Vegas proposed introducing a safeguard threshold of €100,000 euros for the banks’ bondholders, many of whom are ordinary Italian citizens, with combined holdings worth some €200 billion, who were told by the banks that their bonds were a secure investment. Not any more.”

    This is not completely stupid, as it puts these missold items, back under the FDIC Umbrella. Where the funds should have remained.

    It also makes bailing in many of those banks, much simpler.

    The Euro regulators may be strong-armed into accepting this “Fix”.

    What there seems to be no mention of, is any Penalty on the bank’s over the blatant “Misselling” incidents.

    Italky and spain like greece has a HUGE target 2 imbalance.

    Target 2 is the growing issue in the Eurozone. Particularly for those waving the Drachma, Franc, Lira Flags.

    As those nations are going to have to buy the Euros from somewhere to fund their Target 2 and Euro loan liabilities.

    As the ECB and other Eur states will not be taking the new local toilet paper in those nations, at anywhere near the valuation those nations, try to place on it.

    An attempt to default their way out of debt by those nations with out the consent of Germany and the ECB would lead to decades of financial chaos and hardship in those Nations that tried that path.

    • MC
      May 11, 2017 at 1:41 am

      No, bondholders deserve to eat their losses, regardless if they are big or small.

      You people seem pretty convinced as an European taxpayer I should bail out these people because they are “small guys” and hence somehow more deserving of a pound of my flesh.
      But why should I do it?

      As I’ve written time and time again I have zero sympathy for these people: the reason they buy bonds from putrescent Austrian, Italian and Portuguese banks is not because they were duped by “evil bankers” but because they callously did the math that banks do not go burst and are always bailed out on the taxpayer’s and prudent saver’s dime. Hence they got the best of two worlds: higher yields and an implicit guarantee somebody else would eat losses for them.

      Ordinary deposits are insured up to €100,000 and there are many forms of investment that include capital insurance (once they were mostly 100%, now it’s usually considerably less) which is paid even if the bank ceases to exist. In short the sainted “small guy” has no reason to scoop up toxic bonds if not to get that extra 0.75% in yield.

      • d
        May 11, 2017 at 2:09 am

        The majority of these bondholders were sold these bonds in condition’s of getting loan’s for other things from the bank’s in question.

        The Bondholders were also told by the sales people, who were also the loan officers, that the bonds were guaranteed the same as CASH DEPOSITS.

        Further the bondholders have been prevented from selling the bond’s until they have paid off all of the loan’s.

        These bank’s funded the purchase of their own bonds as a condition of another loan.

        That is illegal. Just like a bank funding buyers of its own shares.

        This has still not come to a head in the corrupt italian legal system YET.

        Putting these particular bonds back under FDIC. makes it much easier to bail in the bank’s.

        Otherwise when these banks are bailed in, these small savers who were miss-sold (fraudulently sold) these bonds. Will loose everything they have including their homes, and there will be (At the least) chaos on the streets of Italy.

        So either way as a Euro tax payer. YOU WILL PAY.

        Also you comment shows, you have read, neither my comment or the article properly, as much of your post applies to general bond holder’s.

        The bonds in question, discussed in the article and by myself are the missold bond’s. Fraudulently sold to retain deposit holders, mostly with loans issued by the bank’s

        What you must decide, is whether you wish to pay a little, (Putting the missold bonds back under FDIC)

        Or a lot (Allowing Financial chaos on the streets of italy, that will spread throughout the entire EU)..

        Paying nothing, is not an option for you, in this “Bond misselling” fiasco.

        • JMiller
          May 11, 2017 at 7:45 pm

          FDIC? What does the FDIC have to do with Italian banks or their bonds?

        • d
          May 11, 2017 at 8:26 pm

          FDIC is a term americans and most of the world understand alluding to various depositors insurance schemes in various Nation State’s.

          Hence its use in the post.

          Just as for americans one frequently needs to go to the effort of using the term Nation State, as to ignorant americans “States” only means individual regional States, in america.  

          It is frightening how many americans are still elected to National and regional administrative positions in america, who have never held, or used, a passport.

          American went out of their way to deliberately create “Their Different” version of the English language and now try to force their american language on everybody as English.

        • May 11, 2017 at 8:55 pm

          “American went out of their way to deliberately create “Their Different” version of the English language and now try to force their american language on everybody as English.”

          That’s the funniest thing I’ve heard all day.

        • d
          May 11, 2017 at 10:21 pm

          Websters V Oxford.

          American’s dont see it that way.

          It is however, what was deliberately done, with much more than language.

          And still is being deliberately done, by Americans to enforce the “American Way”

          Take one of the bridges America agreed to build with Canada. The agreement stated, the bridge would be built, using metric standards.

          So the americans converted all the american imperial standard dimensions to metric.

          Bolts were not a standard metric 19 MM and 25 MM but specified as 19.4 and 25.4 the imperial converted dimensions. Steel not 6MM and 25 MM but 5.5MM and 25.4 MM.

          The Americans did this to all materials on the bridge then claimed this was “Metric Standard” and expect the Canadian side to purchase to, and use only, these “Metric Standard’s”.

          Thats both ridiculously stupid, and funny.

          Needles to say after several trips to court the Americans were forced to relent. This delayed the bridge construction considerably.

          This still comes up in joint project construction all the time, which is why many times it either American on non American contractors, as Americans wont listen, and wont work to Metric standard’s . This is in fact a form of “American protectionism”.

          Americans do not speak English. Colour Color. Etc.

          These are just the facts of life when dealing with American’s or American manufactured Equipment.

          The annoying part is, when Americans go about the world teaching people to speak write and spell their “American” language, whilst telling them, they are being taught to speak “English”.

          The chinese are just as bad. They have rewritten steel standards, to make the Japanese steel incompatible, and now expect the rest of the world to change to “chinese” standards, as they are the biggest dumping producer of Steel.

          An English Gallon contains (app ) 4.5 Litres yet and American Gallon contains (App) 4 litres.

          The English Gallon came first. The American gallon was deliberately made different, Because they could, as they were already using English gallons and changed to the new, American ones.

          Protectionism, and deliberately being different, and difficult, because they can.

          The sad thing is, America still deliberately does this, and has taught china to do the same.

          It actually costs America and china.

          When we build boats, and most other things, we avoid American equipment and components, as much as possible, even when it is more expensive to do that, as it is all deliberately and unnecessarily, different sizes.

          Two of the good things to come from the Eu, Were CE and Metric DIN.

          For along time, almost all vehicle wheels and tyres, were globally in Imperial dimension’s, so the Europeans played the American game, and started making “Metric ” wheels and tyres.

          Then the Japanese started making wheels and tyres in 15 1/2″, 22 1/2″ Etc diameters instead of full Inch diameters.

          Playing the American and chinese Protectionist game, with industrial standard’s.

          Its really all very Pathetic, since 1776 when the americans started doing it because they could. Not due to the fact that measurement systems naturally developed differently in the East, Europe, and England over thousands of years.

          Hopefully Brexit will not return England to the imperial Measurement System and standard’s. As decimals are much easier to deal, with than fractions.

        • May 12, 2017 at 12:05 am

          You make me crack up. You have no idea how funny this is to me. LOL

        • d
          May 12, 2017 at 12:43 am

          “You make me crack up”.

          Thats good.

        • JMiller
          May 12, 2017 at 2:37 pm

          d,

          I thought that is probably what you meant when you wrongly said the FDIC. When it comes to the deposit scheme in Italy it is the Fondo Interbancario di Tutela dei Depositi (FITD) or in English, the Interbank Deposit Protection Fund.

      • Gershon
        May 11, 2017 at 6:40 am

        As I’ve written time and time again I have zero sympathy for these people: the reason they buy bonds from putrescent Austrian, Italian and Portuguese banks is not because they were duped by “evil bankers” but because they callously did the math that banks do not go burst and are always bailed out on the taxpayer’s and prudent saver’s dime.

        Totally agree. These yield-seeking gamblers and vultures deserve to eat their losses.

  5. Ishkabibble
    May 11, 2017 at 12:18 am

    “That’s the ultimate threat: monetary sovereignty — its own currency — under very messy conditions. Let others pick up the pieces of the Eurozone.”
    =========

    This is precisely what MUST happen in Italy and Greece and, in the future, other members of the EU. These countries must start printing their own currency and designing their own economies for the benefit of the vast majority their citizens. They must again “go it alone” as they did for literally centuries before the EU was rammed down the throats of the nations of Europe by the good old US of A.

    After they leave the EU and start printing their own currency, the people of these countries will have a very tough, “austere” time for several years, but they will indeed recover. If they stay in the EU they’ll sink ever deeper into debt as they (their creditor bankers) are “bailed out” time and time again, as Greece has been, and stripped clean of everything of value.

    • d
      May 11, 2017 at 12:43 am

      Or the Club-Med Eurotrash continue the ever closer union and federalise.

      Greece being the exception as it is not really wanted in a federalised Eu and will be let go when it can persuade its population to vote out of the Euro. Returning it like turkey to “Buffer State” status.

    • Alfred (Melbourne)
      May 11, 2017 at 12:47 am

      “This is precisely what MUST happen in Italy and Greece and, in the future, other members of the EU”

      It should have happened a long time ago. It is inevitable. The Germans and Dutch will have to find out for themselves just what the expensive paper they bought from Italy and the others is really worth.

    • Kent
      May 11, 2017 at 7:53 am

      Look at the EU as a mechanism to subsidize Northern European products for Southern European consumers, while simultaneously forcing debt upon those Southern Europeans.

      All of the benefit is going to Northern Europe. Ergo, the German government must keep everyone in the Euro or the German economy collapses.

      • nick kelly
        May 11, 2017 at 5:08 pm

        All of the above are so wacky (the EU being a US idea) etc. etc. that it wouldn’t normally be worth replying, but in fact the German economy was doing just fine before the euro. Certainly by comparison with anyone else in the EU.
        Not booming perhaps, but collapsing without Southern Europe? No.

        BTW; you may want to check the driveways nearby for evidence of German exports to places other than Europe.

  6. BobT
    May 11, 2017 at 1:23 am

    I have no idea how this plays out but I am confident that the mafia holds large amounts of capital in these bonds, they are an incredibly sophisticated organization these days in a financial sense. Yes, QE has floated organized crime’s boat too.

  7. BoyfromTottenham
    May 11, 2017 at 2:24 am

    Realist said ‘Italy has allowed its industry especially small and middle sized companies to loose (sic) their competive (sic) edge’. I disagree – joining the Euro meant that Italy immediately lost the ability to devalue its Lira, which it is well known has been devalued many times in the past as a way to regain its competitive edge. If nobody warned the Italian government at the time (as if!), its politicians should have known this anyway. But maybe the lure of low EU interest rates was too great (almost certainly). Now they cannot kick the can down the road any longer, so they want to turn back the clock. Good luck guys.

    • MC
      May 11, 2017 at 5:29 am

      Romano Prodi famously said to Gerhard Schroeder: “Support our EMU bid and we will buy your goods”.

      Italian (and Spanish, and Greek, and Portuguese and…) politicians, bureaucrats and economists were fully aware entering the EMU would remove the only hedge their shaky economies had, that of currency devaluation. Once that was removed Germany hate their manufacturing sector for lunch, and is still doing so.

      The decision to throw Italy’s manufacturing sector under the bus was fully conscious. As some sort of replacement there was a robust, albeit doomed to fail, attempt to inflate a housing bubble in the North, and to step on the gas of public spending, which was chiefly done through the Provinces to avoid that debt to show up in the national total.

      As I’ve said in the past, over 60% of Italy’s known pile of NPL’s (which is apparently growing by the month… odds are it’s well north of the €400 billion mark) comes from “construction and real estate”, to which must be added the growing piles of commercial real estate loans going sour as the retail sector is eating itself in a desperate move to stem Amazon’s relentless advance.
      Banks are far from happy about going after these debtors: they already sit on far too much real estate, so much Intesa started an in-house real estate agency to attempt dumping these properties upon retail customers. They also know if the value of collaterals drop even further, the NPL problem will become even worse, as many loans have renegotiation clauses once the underwriting collaterals drop below a certain level, making it even harder for debtors to make their repayments.

      Italy’s problems are far beyond both the “ostrich putting his head in the sand” approach adopted by successive governments and the hypersimplistic solutions offered by M5S: they will require years of painful and politically unpalatable choices just to be normalized.

    • Realist
      May 11, 2017 at 8:12 am

      De facto the damage to Italian industry was done long before even the Ecu was heard of. With an uncompetive industry that did specialize in low tech and low value products, the Italians were doomed when China did join the world market regardless how much the lira was devalued. Rigid structures and endemic corruption only helps to increase the uphill faced by Italy. Far reaching reforms of the political system, the legal system and the economy is what Italy needs and no politico has the balls to do this, after all it is the misdeeds of 40+ years that need to be corrected in Italy.

  8. Mad Max
    May 11, 2017 at 5:14 am

    Meanwhile they just surpassed Spain to have the largest Target2 deficit in the Eurozone

    http://thesoundingline.com/eurozone-inter-bank-imbalances-surging-to-highs/

  9. Gershon
    May 11, 2017 at 6:47 am

    I am dismayed by the widespread perception in here that our all-knowing, omniscient Keynesian central planners and central bankers, who use models and stuff, have built a financial house of cards that is now tottering under the weight of its own fraud, fictitious valuations, and artifice.

    Our central bankers and central planners are in fact paragons of virtue and fiscal rectitude, masters at navigating us through the uncharted waters ahead, backed by our vigilant regulators and enforcers with their exceptional track record of safeguarding the public interest. And to be sure, our financial media, the intrepid 4th Estate with independence from corporate control and its fearlessness in speaking truth to power, are watching them like hawks and would surely alert their trusting readership if anything was amiss.

    Oh, wait….

  10. unit472
    May 11, 2017 at 7:14 am

    Between now and October, 2019 the EU will have to replace Mario Draghi at the ECB ( its Germany’s turn to name the new chairman), negotiate Britain’s exit from the EU, face French parliamentary , German and Italian elections and hope no black swans fly in.

    Anyone who thinks the buffoon Juncker can finesse all this and not have a major crackup in the Euro is either a fool or has some insight I fail to see.

    • Gershon
      May 11, 2017 at 8:05 am

      Using my uncanny, Nostradamus-like ability to predict the future, I foresee Draghi (and every other central banker, eventually) being replaced by yet another “former” Goldman Sachs executive.

      How does he do it, you ask….

    • chip javert
      May 11, 2017 at 3:08 pm

      It’s enough to drive a guy to drink.

      Oh, wait….

  11. aldo di
    May 11, 2017 at 10:50 am

    since we live in a time with seemingly endless (fiat) capital… then debt is at best a construct of the banking / war for profit kabal that at worst is the equivalent of modern day slavery chains – this is our current reality we are awaking to collectively and will free ourselves from one event at a time…

    i remain hopeful the younger generation will spark this needed change as they currently suffer most from the many crimes at hand…

    better times are coming and will emerge from the ashes of what must currently fail…

    italy could be the first event that starts the domino chain…

  12. Paul Engler
    May 11, 2017 at 11:14 am

    FEE FI FO SHUM I SMELL A WORLD WIDE DEPRESSTION.

  13. chip javert
    May 11, 2017 at 3:06 pm

    Is there any EU law preventing Italy from having both the euro and lira at the same time?

    Seeing the Brexit difficulty, hard to understand how much weaker Italy could play that game…and, I assume, Italy would have to settle all it’s Central Bank euro debts (all that QE had to be divided up among all euro currency nations). Italy just can’t walk away…

    • nick kelly
      May 11, 2017 at 10:35 pm

      You can walk away – Argentina tried ( to the applause of lefties everywhere) but were shut out of the markets. Surprisingly, people don’t want to lend to a deadbeat.
      After the near collapse of the economy (see Venezuela) it has changed and returned, placing about 20 billion at 7.5.
      I estimate (charitably) this is what a stand alone Italy would have to pay to roll over its debt ( currently at 2%)
      Or it could walk away- see Argentina.

      • d
        May 11, 2017 at 10:59 pm

        The only thing keeping Italy under 15 is the ECB.

        The italian banking system, is in reality, a bigger basket case by far, than the greek one.

        The only hungry for yield buyers of italian or greek debt, if it was outside the Eurozone, would be the insane ones.

        The DPRK would be a safer “Investment”.

  14. JB
    May 11, 2017 at 3:33 pm

    Same song different melody : the worlds central banks have happily provided massive amounts of liquidity to the globes financial system . They and their cohorts have prospered immensely post the 2008 recession. They are eager to “rescue” sovereign countries . They are the great “enabler”. Many countries have had ample amount time to correct inherent structural/fiscal
    flaws in their economic and political systems but have deferred these bitter pill changes. Instead they opt to stay plugged into the central bank’s liquidity conduits.

    • Gershon
      May 11, 2017 at 7:00 pm

      And still most voters meekly bend over and grab their ankles for these grifters and their Establishment political water carriers.

  15. May 12, 2017 at 12:36 am

    I remember telling everyone in 1998-99 that one day Italy will destroy the Eurozone – and I was a first year economics student!

    It was tremendously obvious that trying to stick Italy in the same currency union as Germany as presented was a ludicrous idea.

    It’s taken about a generation (1999-2017/19) which seems about right.

    • d
      May 12, 2017 at 1:18 am

      What they were supposed to do in that period was enact fiscal union.

      They haven’t which is what makes you probably correct, as at this point fiscal union with France and Club Med, is an insanity for the northern states.

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