Get Your Money Out Of Italian Banks Now! Austerity And Bail-Ins Fan Populist Flames; Italy’s 5-Star Movement To Challenge Renzi

Austerity and Bail-Ins Fan Populist Flames

The Italian economy is growing, albeit barely. But Italy is still saddled with massive amounts of debt.

Citizens are upset about a recovery that has passed most of them by. For example, youth unemployment is a whopping 39.8%.

That’s a lot of potential voters rightfully upset about things. For them, promises are many, and gains are nonexistent.

Topping off the discontent, Italy Bank Rescues Spark Bail-In Debate as Anger at Renzi Grows. 

 In 2013, Sergio Picinotti, a 63-year-old unemployed man living with his elderly mother, invested much of their nest egg of €40,000 in a bond issued by Banca Etruria, their local bank based in the medieval Tuscan city of Arezzo.

“They said ‘what are you doing keeping that in your checking account? Put it here, you’ll earn 4 per cent flat,” Mr Picinotti recalls. “A friend at the bank told me: ‘Trust me, it will take the third world war to shut down Banca Etruria’.” 

Today, Mr Picinotti has lost all that money, but Banca Etruria never closed: in fact it was saved from collapse last month along with three other small banks in a dramatic rescue operation engineered by the centre-left Italian government led by Matteo Renzi. 

The trouble is there was a price to pay: under the terms of the deal, several thousand subordinated bondholders such as Mr Picinotti were wiped out along with Banca Etruria shareholders, while holders of senior debt and depositors were spared. 

“They stole it all, I’m living on the edge,” says Mr Picinotti.

But the reverberations of the bank rescue have also been felt far beyond Tuscany: as Europe prepares to institute new rules from next year which would force losses on bank creditors and big depositors, the saga of Banca Etruria serves as a cautionary tale to politicians and policymakers about the public backlash that could follow any future “bail-ins”.

On a national level, anger has been mounting towards Mr Renzi for his handling of the affair. It has created an unlikely hotbed of discontent with the 40-year-old prime minister and former mayor of nearby Florence in a region that is traditionally sympathetic to his own political party at a time when he is already battling declining polling numbers.

The Banca Etruria case has also revived worries about the health of the Italian banking sector, which remains saddled by more than €200bn of non-performing loans (NPLs) and has barely started to increase lending again after the end of a bruising triple-dip recession. It has also raised questions about the effectiveness of regulators at the Bank of Italy and Consob, the stock market regulator. Italian officials have defended the solidity of their banks and the work of their regulators, and pointed to new reforms of small bank governance. But Francesco Galietti, an analyst at Policy Sonar in Rome, said: “If there was such a kerfuffle with four regional banks, what will a large resolution look like?”