In this article, I will be discussing the latest in the Monte Dei Paschi saga and the recent developments with America’s dealings with Russia. These two stories don’t mix, but neither have enough content to fill an article. With Monte Dei Paschi, there is continued political squabbling over what will occur in terms of the bailout. The foes are Germany and Italy. With Russia, America is facing an interesting turn because Trump could potentially become warmer towards the country. It also means a political squabble could occur within his own party. Trump never was a true Republican, so this makes sense.
Monte Dei Paschi
To brush up, Monte Dei Paschi failed to raise 5 billion euros in the private market to prevent the need for a bail-out by the Italian government. The ECB rules are somewhat arbitrary, but the initial goal of the 2014 regulations were to eliminate bail-outs of banks without the bondholders taking some of the losses. This is considered a bail-in. Bail-ins make more sense because they are more affordable. The Italian banks have $360 billion euros in bad loans, so the private market, the Italian government, and the bondholders need to put all ‘hands on deck’ to get the situation resolved.
The initial reason for this Italian crisis can be traced to the European Union itself because the euro currency is too expensive for Italy to compete on the global scale. Italy and other countries are making the euro cheap which helps finance Germany’s exports. It’s a failed concept which is why I push towards expecting this Monte Dei Paschi situation becoming the final nail in the coffin of the EU.
The latest rhetoric from this story is the Italian officials are not pleased with the increase in the amount the ECB states Monte Dei Paschi needs to be bailed-in. The letter from the ECB had five lines where it said the bank needs 8.8 billion euros instead of 5 billion. The reason is simple; the bank has lost depositors. However, the Italian politicians need to latch onto something, so they are complaining there wasn’t an explanation given for the change. The ECB is quick to manipulate the rules, so I’m never shy to criticize it, but in this case, it did nothing wrong.
