Which Banks Are Most Exposed to Italy’s Sovereign Debt? (Other than the Horribly Exposed Italian Banks)

“Doom loop” begins to exact its pound of flesh.

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

Risk. Exposure. Contagion. These are three words we’re likely to hear more and more in relation to Europe, as the Eurozone’s debt crisis returns.

On Friday, Italy’s 10-year risk premium — the spread between Italian ten-year bond yields and their German counterparts — surged almost 20 basis points to 212 basis points. This was the highest level since May 2017, when a number of Italy’s banks, including third biggest bank Monte dei Paschi di Siena (MPS), were on the brink of collapse and were either “resolved” or bailed out. Now, they’re all beginning to wobble again.

Shares of bailed-out and now majority-state-owned MPS, whose management the new government says it would like to change, are down 20% in the last two weeks’ trading. The shares of Unicredit and Intesa, Italy’s two biggest banks, have respectively shed 10% and 18% during the same period.

One of the big questions investors are asking themselves is which banks are most exposed to Italian debt.

A recent study by the Bank for International Settlements shows Italian government debt represents nearly 20% of Italian banks’ assets — one of the highest levels in the world. In total there are ten banks with Italian sovereign-debt holdings that represent over 100% of their tier-1 capital (which is used to measure bank solvency), according to research by Eric Dor, the director of Economic Studies at IESEG School of Management.

The list includes Italy’s two largest lenders, Unicredit and Intesa Sanpaolo, whose exposure to Italian government bonds represent the equivalent of 145% of their tier-1 capital. Also listed are Italy’s third largest bank, Banco BPM (327%), Monte dei Paschi di Siena (206%), BPER Banca (176%) and Banca Carige (151%).

In other words, despite years of the ECB’s multi-trillion euro QE program, which is scheduled to come to an end soon, the so-called “Doom Loop” is still very much alive and kicking in Italy. The doom loop is when weakening government bonds threaten to topple the banks that own the bonds, and in turn, the banks start offloading them, which causes these bonds to fall further, thus pushing the government to the brink. The doom loop is a particular problem in the Eurozone since a member state doesn’t control its own currency, and cannot print itself out of trouble, which leaves it exposed to credit risk.

But it’s not just Italian banks that are heavily exposed to Italian debt. So, too, are French lenders, which last year had combined holdings of Italian bonds worth €44 billion, according to data from the European Banking Authority’s 2017 transparency exercise. Spanish banks had €29 billion.

Which three non-Italian lenders of consequence are most exposed, in absolute terms, to Italian debt, based on Dor’s research?

BNP Paribas, France’s largest bank, with €16 billion of Italian sovereign debt holdings.

Dexia, the French-Belgian lender that collapsed twice and was bailed out twice between 2008 and 2011. It holds €15 billion of Italian debt.

And, drum-roll please: Banco Sabadell, the mid-sized Spanish lender that already has a gargantuan self-inflicted IT crisis on its hands at its UK subsidiary TSB. It has €10.5 billion invested in Italian bonds — the equivalent of almost 40% of its entire fixed asset portfolio, worth €26.3 billion, and 110% of its tier-1 capital.

“With the data from the European Banking Authority, we estimate that the lenders that would suffer the greatest impact [of a new Italian debt crisis] are Unicredit, Sabadell and Intesa Sanpaolo,” analysts from RBC Capital Management recently warned. According to their calculations, with every 10 basis-point rise of Italy’s risk premium, Sabadell will suffer a €28 million hit to its tier-1 capital. Since the coalition between Italy’s Five Star Movement and Lega was first unveiled, on May 15, Italy’s risk premium has surged by 81 basis points.

To make matters worse, another third of Sabadell’s fixed asset portfolio is invested in Spanish bonds. They are also losing value, partly as a result of the contagion effect from Italy but also due to rising domestic political instability, and the approaching end of the ECB’s QE. In the last two weeks, yields on 10-year Spanish bonds have risen from 1.27% to 1.47% while the 10-year risk premium has surged from 72 to 110.

When yields rise, prices fall by definition, and the more prices of Italian and Spanish bonds fall, the bigger the hit the banks’ capital buffers. The more the banks suffer, the more they will shy away from their respective domestic government’s debt, resulting in further falls in bond prices. Such is the fragile relationship of co-dependence between Eurozone banks and the governments whose debt they buy in such abundance.

When banks invest heavily in government debt, they become dependent on the government’s good performance, which is clearly not a given, especially in the Eurozone. Meanwhile, the governments depend on the banks to continue purchasing their debt, which also is no longer a given. This is the “doom loop.” It’s circular. It gets kicked off when either one falters, and the consequences can be dire for both.

In the case of Sabadell, it already has enough on its plate trying to clean up the mess it has created with the botched IT upgrade at its UK subsidiary, TSB, where customers are now leaving in droves. Given that TSB represents roughly a quarter of Banco Sabadell’s total assets, the impact on the Spanish bank’s own financial health could be considerable. If the sell-off in Italian sovereign debt escalates, Sabadell will have even bigger problems on its hands. By Don Quijones.

Blackstone Group, Cerberus Capital Management, and others face a problem. Read…  Wall Street Mega-Landlords Piled into Spain’s Rental Property Boom, and Now it Hits a Wall?

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  74 comments for “Which Banks Are Most Exposed to Italy’s Sovereign Debt? (Other than the Horribly Exposed Italian Banks)

  1. caradoc says:

    Turkish exposure too anyone?

    They’ll probably cope with all of this only to find some innocuous event elsewhere in the world is the butterfly beating wings that leads to the next credit crisis.

  2. Dave Mac says:

    Super Mario will come to the rescue, won’t he?

    • Frederick says:

      Hope NOT but yeah no doubt he will

    • Wolf Richter says:

      Super Mario will lose his job next year.

      • van_down_by_river says:

        There will be an different bureaucrat just like Mario at the helm soon. This new Super Mario 2 may have a different name but he will follow the same course. The ECB has to monetize Euro government debt, to believe otherwise is to believe Italy will not only stop running deficits but actually pay back its debt. The same holds true for all developed economies. The ECB will bail out the banks buy buying the debt and they will bail out the governments by buying ever more debt as it’s created.

        There may be a rocky period for the banks but when push comes to shove of course they will be bailed out with more freshly created money.

        • Gershon says:

          The criminal private banking cartel that runs the central banks has a deep bench of “former” Goldman Sachs officials to do its bidding. The name, nationality, and gender matter not: they are all the same creature.

      • d says:

        And the french are lobbying hard for a pro easing replacement.

        French self interest, over Eu and Eur necessity.

        NOT A CHANCE. (Sarc)

        • Gershon says:

          Don’t confuse the French with the globalists who have hijacked their country.

      • Rates says:

        Then it will be Luigi’s turn, but yeah, it will be the same Whatever It Takes.

        Give this 2 weeks to 2 months and it will go negative again.

    • Tom Kauser says:

      Tarp credits have run dry and with repatriation and balance sheet reductions tarp 2 will cost more and come with less flashy sedans?

  3. raxadian says:

    I think I should insert a clip.of the Comic Book Guy from the Simpsons saying “Worst idea ever!” when it comes to the Eurozone.

    I mean what the hell man? The idea was to make a economic union to be able to compete with the US, not sink the countries that are part of it!

    But Europe has proven corruption goes a long way as long as there is money dear boy.

    • John Doyle says:

      It was a triumph of hope over reality. The Euro nations are just not like US States, or Australian or Canadian. what with different customs etc. The EU central bank will be dragged into bailing out all the defaulting governments, no matter what treaties say. Reality will tear up paperwork. It’s their ONLY hope. The neo-liberal structure behind the Eurozone was always faulty and dooms the EU if it’s not overturned a s a p. Even Germany cannot benefit for long as it has the biggest % of unemployed below the poverty line [@21%] in Europe. And anyway it doesn’t have to bail out other governments any more than Kansas bails out Washington.
      Interesting times ahead!!

      • raxadian says:

        Now to be fair the US has done a lot to screw itself over. A military budget that wastes double or more than really needed, having a pension system that would collapse without the “will never get a pension” work of illegal immigrants, one of the most overpriced healthcares in the world, producing way more dollars that they can back with any precious metal or heck, even with common salt… and I better stop here because the post would get too long.

  4. Bev kennedy says:

    Read up on the history of the British east India company and its bail out as well the Parallels to being a law and government unto itself. History repeats

  5. Tim Morgan says:

    Crumbling prosperity has pushed Italians ever nearer desperation.

    A major factor in this has been membership of the economically-illiterate Euro system, which cripples policy coherence by combining a single monetary policy with a multiplicity of budget processes.

    This has taken away the scope for gradual devaluation, previously relied on by successive governments to cushion the consequences of deteriorating competitiveness. This weakness is not offset by automatic stabilisers, absent in the Euro Area but normal within unitary currency areas like the US.


  6. GSH says:

    EU just needs some additional political integration and it will be just like the US. Transfer payments to Alabama or Louisiana don’t seem to upset anybody here.

    The EU Euro zone is like the Hotel California, i.e. you can check in but you can never leave. See Greece. The next crisis will provide the cover for increased political integration, i.e. a federal government with real teeth.

    • Bob says:

      German controlled I think

      • Erich says:

        Of course it’s controlled from Germany. You must remember Germany tried to unit Europe twice before using Tanks …. didn’t work out too well for them. This time they’re using Banks as in “he who controls the money controls the country (or EU in this case). There’s a reason the European Central Bank is located in Frankfurt. Lets sit back and see how well it works out for the Germans this time …..

    • Jim Graham says:

      “”The EU Euro zone is like the Hotel California, i.e. you can check in but you can never leave. See Greece””

      What I see is The British Isles. What do they know that the “rest” of the EU is refusing to face?

    • d says:

      “The EU Euro zone is like the Hotel California, i.e. you can check in but you can never leave. See Greece”

      You can leave. It is 2 year long process, and you need to settle your Target 2, ECB, and Eur Bond debts, in EUR cash, before you go.

      Something greece simply could not do.

      AS To leave the Eur, one must also leave the Eu, currently.

      As the Eu is demonstrating in Brexit. They will make this, as expensive, painful, and difficult, as they can.

      The chances of a “no deal” Brexit are looking stronger by the day as “nothing is agreed until all is agreed” will come back to haunt the Eu and the world soon.

      Personally I believe Theresa has always know “No deal” would be the end result.

      As the Eu docent want on unless it is 1000% on their term’s.

      Their behavior over Ireland show’s this. What the stupid irish don’t see. Is that Europe is using them as a Sacrificial Weapon against England. Again.

    • disc_writes says:

      >EU just needs some additional political integration

      Oh, no problem, then. The German and the Dutch will love paying unemployment benefits to Southern Europeans…

      > The next crisis will provide the cover for increased political integration

      Actually, Kohl, Mitterand etc. promised that the *first* crisis, i.e. the 2009+ one, would have provided cover for further integration.

      The fact that it has not happened, and that we are much more divided than 10 years ago, does not really bode well.

  7. TruthHurts says:

    An off topic question; does anyone have any theory why the yield on 10 year T-Bond has fallen from 3.05 back to 2.93? I would have expected it to go to 3.10 or even higher.

    • Frederick says:

      I was wondering the same thing Seemed like it was rocketing higher Somethings up evidently

    • GSH says:

      A typical short squeeze. Everybody was short.

    • Wolf Richter says:

      On a 10-year chart, you can barely see that little dip. Even by recent moves, it was no big deal. The 10-year yield can be quite volatile:

      • Gibbon1 says:

        Financial news reminds me so much sportcasters ruminating on why particular players are doing well or sucking.

        • LessonIsNeverTry says:

          Absolutely! I can hear it now. “The ten year has lost its confidence and is out of form, but still remains one of the best in the league at the position.”

    • cdr says:

      3.10 and much higher is a certainty. The dip, in my conspiratorial mind, was a combination of a short squeeze, a flight to safety, and some players with big money (central banks who don’t want rates to rise) buying into the momentum.

      The central banks will lose. Rates will rise and those central banks without a good plan B will be left standing there with their underwear below their knees or worse … over their heads from behind self inflicted. That is also a certainty. The only way rates won’t rise is if someone captures the Fed once again.

    • Petunia says:

      If the number of mortgages issued is down, that may be the reason. The 10 year rate is the rate at which most mortgage issuers fund their lending. They borrow at the shorter rate, lend at the higher 30 year rate. Where I am, there is a lot of new construction with higher prices, but I don’t know if the buyers are out there. I think not and maybe the market thinks so too.

      • blindfaith says:

        Long time no read, nice to see your back.

        Agree with you comments, and from what I gather, the answer is the new construction sales and ‘used’ homes sales are both down and new mortgages are as well. Lower sales has been creeping up for sometime, just not ‘reported’ as such. You know ‘lagging’ indicators.

        Look at Fanny and Freddy coming out with 3% loans and no verifications ( including country) just like the old days. Got to move those refrigerators and color TVs as the song goes. Never mind we have a lost generation that is broke.

  8. Hkan says:

    Question is where’s money gonno come from covering all these losses?
    Tax payer?
    If so what would that scenario be an Italian, Spanish or European?
    If European is protecting saving accounts good idea?

    Looks like its getting serious….

    • Javert Chip says:

      Just looking at the taxpayers, it can’t come directly from them (tough to tax at more than 100%, but if anybody could figure it out, the ECB could).

      Actually, I’m voting for good old fashioned inflation (understand, I’m not recommending this, just predicting it).

  9. Gershon says:

    Since 2008 the central bankers have kept interest rates artificially low, to facilitate the unprecedented wealth transfer from the poor and middle classes, to the oligarchs, which, unsurprisingly, has given rise to the anti-globalization movement as the former sheeple belatedly looked up from their grazing and saw what their neoliberal masters had in store for them. This populist upsurge means the central bankers’ days of relentlessly screwing over the 99% by suppressing interest rates are numbered. When rates start to surge, Italy and Spain will be the first dominoes to fall. From there, the cascading defaults and spectacular implosions of the asset bubbles blown by the Fed, ECB, BoJ, etc. will finally expose these fraudsters for the charlatans and grifters that they are.

    • ZeroBrain says:

      Kind of like happened in 2008 when “nobody could have seen it coming”? Back in 2008 I saw a real awakening among the public – everyone finally started paying attention to how money was created and extended to those best connected to the central banks and how the prudent got screwed.

      Oh what’s that, no one paid attention and bankers got away with it? Well I’ll be darned. But you’re right, next time we’ll catch on!

      • Gershon says:

        Ron Paul, literally the only honest politician at the time, crusaded in vain back in 2008 to expose and put an end to the Wall Street-Federal Reserve Looting Syndicate’s crimes and swindles against the 99%. For his troubles he got 5% of the vote, with the rest of the sheeple voting for “Hope and Change Goldman Sachs can Believe In” or the even more captured and complicit GOP “alternative.”

        We purely and simply deserve everything that’s coming to us when the Fed’s financial house of cards implodes under the weight of its own fraud and artifice.

        • Tom T says:

          NO! we do not deserve what is coming to us … that is the meme used in the thirties. It is NOT going to work again.

      • blindfaith says:

        Page six, Consumer Reports, August 2006, comment by the Editor:

        It was a dire warning the house of cards would fall and homeowners would loose their homes. That the FED policies could take the country into a recession or worse. I never saw anything like that in Consumer Reports before, I and took it very seriously.

        Everyone saw it coming, they just were greedy and figured they could get out first. Flipping homes flipping stocks, you name it and I heard more than a few times the comment about ‘musical chairs’ and who would be left standing.

        Europe is in the big leagues now with this game. The ECB and the leaders learned nothing by what happened to Greece. That should have been the wake up call, instead it has become the money machine for the well connected and Politians alike.

  10. Alex says:

    Doesn’t the ECB own these Banks’ bonds that funded them buying the gov debt?

    • Quadra says:

      Kind of, the banks place them as collateral with ECB or repo them out. simplest way to make money ever buy your own country bonds use them to fund on ECB rates and take home 1.5-2.0 percent. What can go wrong? Only if ECB close the liquidity which would be a dissaster for Italy now.
      The liquidity was meant to boost loans to the economy instead it just gives profit to the banks, and costs the country twice. Higher interest cost and not enough liquidity to the economy. This might have been acceptable 2009-10 to bail out banks, but now it’s just a steal and unsound policies.

  11. van_down_by_river says:

    “the approaching end of the ECB’s QE” ???

    Your excellent article exposes why, I believe, Draghi cannot and will not stop QE yet you talk about the planned halt to QE as if it is a certainty.

    Draghi must continue to buy Euro government bonds. He must do this because a country like Italy cannot pay for it’s bloated and corrupt government with tax dollars alone.

    But, you might say, if the ECB creates money in an obvious move to monetize European government debt he will crush the value of the Euro. Draghi said he would do whatever it takes – what it takes is creating new Euros, forever, to buy ever more debt and permanently park it his balance sheet. The Euro will drop in value and zeros will be added just like the Italian Lire of the past.

    Draghi is not alone in his monetization scheme, all of the central banks are in the process of inflating away government debts. The more the banking system inflates away the debt, the more governments will spend – there is nothing new under the sun.

    Cash is trash, and electronic cash doesn’t even leave you with a fun souvenir, from a by-gone era (like Lire or Francs) to show the grandkids. Poof! it’s value just disappears without a trace.

    Panic now and avoid the rush.

    • cdr says:

      You get it!

      The geography as of today: The US is stable. The Japanese are stable. The Chinese are stable. Even the goofy Swiss are stable. The US has a mostly market economy. The others are mostly closed systems and, thus, impervious to short term shocks.

      The Eurozone is a living satire of an economy. Failure is certain, the timing is not. Everything they do on a big scale is extremely stupid, but they do it with the force of law and with the compliance of the sheep who support them.

      The economic explosion when ECB QE is finally seen as the comical farce it is will be massive. The only question is how much will be contained in the EU. I suspect a lot. The real entertainment will come from the excuses they offer. I personally suspect they will try to offset their incompetence in managing an economy with greater and greater tiptoes towards a totalitarianism before the sky falls.

      What will follow that is a mystery. The EU is a strange place. It could get really odd.

      • Javert Chip says:


        We’re all wandering around in finance-Disneyland, but you comment resonates, except for the “…The others are mostly closed systems and, thus, impervious to short term shocks.,,”.

        That didn’t seem to work out well for Argentina, or Turkey. At the moment, Venezuela & Iran seem to be one-off events, but enough one-offs, and they become part of the problem). One of the many nasty things about contagion is you don’t see it until you already have it.

        It’s a relief to read that American banks don’t own billion$ of Italian debt…but then who knows what derivatives are sitting out there? Historically, BofA & Citi banks have an amazing capacity for stepping in every international cow-pie there is.

        • cdr says:

          The major closed systems have enough intrinsic wealth to weather a shock from the Eurozone ending. You are correct in that all moneyprinters who confuse moneprinting with wealth while picking winners vs losers will end up, eventually, like Venezuela with a certainty of 100%.

          The Fed dodged that bullet with 45. Rates are rising. If all economies printed endlessly with their variant of QE, it would work for as long as they were all in on the game, but all would be in a slow economic decline because of coordinated QE. The end result would be dystopia vs. mega wealth for a minority if it ran long enough.

          The real spectator sport sooner than later will be how long the EU keeps kicking the can Vs the growing dystopia in the EU. Even Venezuela didn’t look so bad in the early stages. Try coming up with a quick fox for it now.

  12. Steve clayton says:

    Hi DQ-Wolf, are we due for a black Monday moment tomorrow ref the banks? As I write this the Italian Government look like there’s going to have to be another election.

    • Lenz says:

      Mario: “Fuhgeddaboudit!! You keepa vote, til you get it right, no?!”

    • Wolf Richter says:

      Not this Monday for sure. It’s Memorial Day in the US, and markets are closed :-]

      Look at the Italian 10-year yield. When it’s at 7% or 8% start worrying about a Black Monday in Italy. It’s now at about 2.5%. So you’ve got a little time.

      I think the big question will be if the other Eurozone countries and EU institutions decide that this time, Italy gets to make its own decisions and live with them, or that Italy needs to keep the euro no matter what (as they did last time).

      • Javert Chip says:

        Greece certainly entertained with their 15 minutes of fame…Italy’s population is 6 times as large & GDP is 10-12 times as large.

      • d says:

        charts are like maps, you must have big ones to see, what is, or can, be truly going on.

        I dont have a BIG version of that chart.

        Looking at it as it is, 2012 bottom 2013 bottom, trend line. 2018 break Through/out?

        Also if you take the low between 2014 and 2015 line to the second low that lines up with the i in Historic, then on to date. You would probably have something interesting to think about.

        The next question after that would be what happens when/if it comes back to 2.5.

        • d says:

          It annoys me when I do that. the above comment belongs under the chart.


          “I think the big question will be if the other Eurozone countries and EU institutions decide that this time, Italy gets to make its own decisions and live with them, or that Italy needs to keep the euro no matter what (as they did last time).”

          Many italian, spanish, and some french Banks, get to evaporate.

          Italy gets to keep the Euro.

          As the other options are: they eat italys Target 2 and ECB debt or keep italy broke outside the Eur/EU for ever. As to leave the Eur you must currently also leave the EU.

          Neither of which are very piratical for the ECB and EU.

          Or they split the Eur france greece and club med on 1 side. Germany and the North on the other. So that the southern half can then devalue and implode like last time.

          Target 2 imbalances would have to stay in Northern Eur, some of which would never be paid, so possible moved to the Northern ECB, and retired in some way, at some point.

          If they split the Eur they will have to do something with the Eu freedom of movement regulations. Or the north will have an Economic Migrant problem, that makes the English one, look like a fly on a whale.

          This will also throw a huge curve ball into Brexit, as there will never be consensus on Brexit, with this sort of conflict arising in the Eu Eur.

        • d says:

          Those Euro musings are moot now, as italy is again back to Square 1. Without a Govt and heading to Elections.


      • Gershon says:

        Link to Italian bond rates. They’re “soaring” all right, but that’s relative to the NIRP insanity regime they were previously priced at.

        Watch the Spain and Portugal rates as well for signs of contagion.

      • blindfaith says:

        Wolf…what the EU needs is an LBO !!!! What a great investment opportunity!
        Goldman or someone could put it together in a heart beat.

      • gRant says:

        Italian 10 year watch @ 5:48 (est) 3.15

    • MC01 says:

      Euro bank shares have been in a correction for a few months as of now.
      Deutsche Bank, to quote but the poster child for this fiasco, has shed exactly 40% since its late January peak.
      The reasons are two.

      First, European stock markets are stuck in a hangover after the Trump Spike. So far there has been no Apple announcing the biggest share buyback in history nor any maxi-merger to jolt stock jockeys into overdrive. The Bayer-Monsanto merger is a long and complicated affair which may end up being a mountain giving birth to a (rent-seeking) mouse. What I am seeing right now doesn’t exactly fill me with hope.
      Second, European banks have engaged in a lot of fast-talking but very little, if any, meaningful reforms over the past decade. Under the paid for media shill pieces all the old problems are still there, if they haven’t got worse in the meantime. And retail investors who believed the press releases are getting deservedly beaten, only to complain they have to be made whole to a political system which is only too happy to oblige.

      Personally I fully expect the Italian president to do what Italian presidents are wont to do: give a two fingered salute to voters, form a coalition government headed by a Goldman-Sachs alumnus or a similar shady character and watch stock markets party like it’s 1999 without any other meaningful reform than more fiscal insanity.
      Yes, this means pretty much handing Italy’s keys to opposition parties at the next election and adding a few dynamite sticks to the ticking time bombs financial wrecks such as MPS are but who cares? Short term share prices and nominal GDP figures are all that matters.

  13. Gorbachev says:

    As long as the euro holds, I don’t see the EU collapsing.

    The people do not want to go back to lira..pesos. That is the struggle

    over there.The only way to deliver everything everyone wants is to

    recreate a currency they can print. The voters know they will end

    up with a worthless money so they keep complaining and asking

    for things but they will not give up the Euro because it will

    hold its value.

  14. HAL says:

    Does the mark-to-market on held-to-maturity assets even matter to these banks? As long as Italy doesn’t default, they won’t suffer or have to report any impairments. Obviously, it’s not a great situation, but from a balance sheet perspective, these banks have all been walking dead for a long time. How is this going to make the dam burst? If anything, it enables them to buy more ITAL govies at slightly discounted prices, and then turn back around and repo them to the ECB for funding.

    As long as the ECB continues to accept ITALs as good collateral, there’s not much to see here. The ECB busted Greece in early 2015 when they decided to stop accepting Greek bonds as collateral. The Chinese call this “killing the chicken to scare the monkey” — but they’re not able to isolate Italy from the European financial system, and the day that they stop accepting Italian bonds on repo is the day that every bank in Europe becomes insolvent (as this article illustrates).

    The Eurocrats will agree to reduce immigration (which is 80% of what these populists care about) and will figure out some way to look the other way and let Italy run slightly larger deficits, thereby kicking the can down the road for 6-18+ more months. The Italians will drop the weird DIY parallel currency idea.

    The only thing I can see changing the game is 1) things on the ground in Italy really get unacceptably bad for too many people or 2) significant inflation appears in Germany and other Northern European countries (which would cause the ECB to tighten the strings and make #1 more likely). Italy is a democracy and they don’t appear to be ready to detonate their own financial system, and the ECB isn’t going to, either.

    • MC01 says:

      I’d like to give a small detail to make people not living in Europe a small glympse inside the Italian banking system.

      One of the banks I work with is Intesa-Sanpaolo and about a month ago, while cashing in some investments, the “finance manager” as they call them, pulled out a sheet of paper from his bag and gave it me about “a new offer for savers”.
      Remember when Wolf Street ran those pieces about US banks trying to lock in depositors at “attractive rates”? Same thing, the only difference was you cannot find any trace of it on the bank’s website.
      In short if you bring in from €75,000 to €200,000 from another bank, you get pretty attractive interest rates on your ordinary deposit, from 1.20% to 1.68% according to the sum, no strings attached.
      Ordinary bank accounts in the same bank pay a big fat 0%.
      It doesn’t take a financial genius to understand what is going on here and why the offer is not on the bank’s website where everybody can see it.

      At the same time loans are quietly becoming more expensive, a trend that actually started early last year. That’s part of the reason the Italian government introduced those inane fiscal policies on ammortization after blabbering for years about “fiscal austerity”.

      All of this is happening while technically speaking the ECB is still on course with its old monetary policies. Euribor remains negative all around the spectrum. Yet something is moving below the surface.

      Regarding immigration… the problem cannot be separated from the big labor issues Europe has.
      Countries like Italy, Portugal and Spain have double digit unemployment, even after the recent statistical adjustments. However one should always remember that even these countries are not monoliths. For example in Spain unemployment is extremely high in the interior of regions such Andalusia and Castilla-La Mancha but low in the industrial districts of Catalunya and Euskadi and the big tourist destinations.
      Countries like France have “sectorial” unemployment. To give but an example, unemployment is very low among people 40 or older in rural areas but extremely high among under 25’s in urban agglomerations.
      While the big picture often focuses on unqualified labor from Africa, the big story is the exodus of qualified labor from areas with high unemployment and low wages. Spanish nurses are everywhere these days and Italian CAD designers are busy at work in The Netherlands.
      Wages face tremendous downward pressure everywhere, especially when unreported inflation (or creeping debasement) are factored in.
      To stay in Germany, Munich is still relatively cheap but Berlin, never cheap, has become extremely expensive, driven by skyrocketing rents.
      To quote another website “Corporate Europe has labor exactly where they wanted it”.

  15. Lenz says:

    There’s a lot of hate on Central Banks here, i’m guessing because you all had decent savings before the crash and hoped for a much lower bottom for the market, equity/re etc.

    To be completely fair, being an older millennial, the money printing did provide work for my age group. Through 2010-2013 that money actually was being put to use productively at least regarding my field (entertainment), its the extension of this policy that seems to have dragged and with a exponentially diluted effect. From 2014 and on, the initial pressure to perform gradually became replaced with pretending. I think I’ve mentioned it before here, but the last 4 years i have never worked less and been paid six figures-plus for stare-&-pretend. Obviously its not sustainable, it will end, and lucky for me, I found WS in just the ripe time.

    See, Wolf, if I hadn’t bought two apts in NY when i was innocent and unaware of rates etc etc.. right now i would have not had a 30% boost in my savings, I would probably been resentful of this website, maybe there is such a thing as “premature knowledge”, but i know in a long enough timeline you will be vindicated.

    Anyway, some of you old tarts should appreciate that Central Bank distortion did help a few of us young-lings with decent savings (thought consistently undervalued) and even harder to accumulate…and might have made “whole” many home owners suffering from the last eight years. If anyone goes bust in RE in the next few years, you have nothing but your own ignorance to blame at this point. but just like “ones terrorist is someone else martyr”

    Standing where I am now, I couldn’t fully hate on Central Banks. Fake demand did create “real” jobs and gains for some of us. Would you agree?

    And trust me when i say this, Italy’s problems did not start with the European Central Bank. They might have perfected to an artform corruption and nepotism all on their own.

    • Wolf Richter says:

      This site was started in July 2014. A predecessor site was started in mid-2011. For years it talked about the formation of “bubbles.” Bubbles are bullish by definition because prices go up. And bubbles did form. But bubbles deflate, then prices go down. This site has more recently started showing instances where prices are turning around and heading south (though it also shows were prices are stilling going up (for example, housing), and has given some reasons for it, including the Fed’s actions.

      But that is only a small part of what this site is digging into.

  16. Lenz says:

    Anyway, just wanted to say i’m one of you guys now, so bring on the higher rates and a recession, preferably a depression but with guaranteed FDIC insurance . *fingers crossed*

    • Peter says:

      Asking for a recession in the current situation of the global economy is not the smartest thing. It can get really nasty, for everyone.

      • d says:

        “Asking for a recession in the current situation of the global economy is not the smartest thing.”

        Especially as in the real Economy, the 08 one, has not ended.

    • Frederick says:

      Welcome to the club brother Lenz

  17. disc_writes says:

    It is “Monte de Paschi”.

    Come on people, you learned how you spell Creditanstalt and how you pronounce Deutsche Bank, surely you can make an effort for MPS?

    • Wolf Richter says:

      You don’t know how to spell it either. It’s “Monte dei Paschi”

      At least, we misspelled it only 50% of the time (one of out two times). You misspelled it 100% of the time (one out of one time)


  18. Gershon says:

    Italian president appoints former IMF economist as PM. Yeah, that’ll go over well with the voters who want to take their country back from the banksters and globalists.


  19. Cynic says:

    The message is clear if one looks at the crude attempts to block the new Finance minister in Italy: criticising the Euro is simply a thought crime in the EU.

    But they will have to address the issue sooner or later.

    Germans will never submit to transfer payments – they love the EU so long as it costs them (apparently) nothing, and gives them cheap holidays in the South.

    • Tim Morgan says:

      Germans might not have as much choice as they think – they probably already have huge “credits” on the Target2 system which manages inter-country flows in the Euro Area, and are unlikely to be able to realise these credits, i.e. will make big losses.

      This could get even worse if, as we should now anticipate, capital flight out of Italy accelerates, stretching Target2 balances to levels not anticipated by its designers.


  20. fajensen says:

    In other words, despite years of the ECB’s multi-trillion euro QE program, which is scheduled to come to an end soon,

    Not “despite”. The QE per-design didn’t do anything about the root cause of the “Italian” problem, which is that garbage debt is accepted towards reserve requirements.

    Back when I cared, I do seem to remember reading somewhere in the very volumnous “Basel II” banking rules, that all government bonds from OECD-members are fully as good as cash reserves. No matter that the interest rate on those bonds may indicate something about the quality of those bonds (Those Greek EUR-bonds had rates up to 10% above their German equivalents back in the happier days, nobody cared)

    A.F.A.I.K this was not changed in “Basel III”.

    So, I’d guess that the Italian bankers will be ruined in the conventional way (as were the Greeks) and no-one is to be blamed for this because The Rules were followed to the letter.

    Whatever – ECB won’t blow up the Italian banks, since that means also setting off the DB derivatives stockpile.

    It will all be fixed somehow. There may be a vol-game or two to play on the newsfeed, like with Greece. My pension savings gained 30% just on Greece. What could go wrong ^__^?

  21. Ishkabibble says:

    How are the “meanings” of words established? Further, how do we know what the most important words “mean”? Do we look in dictionaries to determine their meanings or do we listen to how they are used in the real world, by Very Important People? I say the latter.

    For example, I want to know what the word “temporary” “means”. What better way to find that out than by listening to how a former most very important person in the world used it.


  22. Ambrose Bierce says:

    How does the new populist coalition feel about this, was the parallel currency their idea? Perhaps they would just as soon let these banks fail, and institute a debt holiday or something similar?

  23. Tom Kauser says:

    Lost the TARP?

  24. Covey says:

    In an interview on CNBC (29th May) this evening, Art Cashin stated that Italian banks were permitted to hold their Italian Government Bonds “at par” on their balance sheet, and therefore any falls in the bonds value would not show up as losses.

    Does anyone know if this is correct?

    • d says:

      italian bank’s dont declare losses on anything, unless an Ecb official is standing there, forcing them to.

      Which is what art was nicely saying.

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