
Italy’s teetering banks will be Europe’s next crisis - tristanj
http://www.economist.com/news/leaders/21701756-italys-teetering-banks-will-be-europes-next-crisis-italian-job
======
guelo
It’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.

~~~
glenndebacker
"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."

You are aware that the problem with the EU banking reforms (or lack off) was
also that the UK didn't wanted stricter rules with regards of the city of
London... ? They even wanted an exemption.

In this regards I find it really intellectual dishonest that over the pound
they are pointing fingers to the failure of Europe as they were part of the
problem to begin with.

I do hope that from the moment that the UK stops dragging their feet and leave
the EU it will be able to make swifter decisions instead of losing energy in
constant oppositions.

~~~
sievebrain
There is no intellectual dishonesty. Fixing the Eurozone's banking problems
(assuming you believe those regulations would do the trick) is not the UK's
problem and it's not the UK that blindly insists on a one-track, one-speed
Europe: it's Germany and France that are wedded to that concept. They could
easily have introduced new rules only in the countries that wanted them.

But regardless, the problem in Italy is simply that not enough people are
paying back their loans. That's not something bank regulation is going to fix.
Banks make loans, that's kind of what they do, and if a country collectively
gets too bad at paying back those loans then it's gonna have a banking crisis.

~~~
visarga
> Banks make loans, that's kind of what they do,

How naive. Banks have to take collateral and give loans only to
people/companies that have good track record. What they did is to give loans
to people who could not pay back, which is a fatal mistake for a bank.

~~~
pjc50
_give loans to people who could not pay back_

The people they lent to seemed like reasonable credit risks at the time - this
isn't the same situation as US "subprime". Fundamentally there's no way to
_know_ whether a lender will be able to pay back, you can only make
statistical guesses at the time based on limited information.

There's an additional problem in that NPL levels depend on the state of the
economy as a whole, which can become a self-fulfilling prophecy.

(See e.g. [http://english.mps.it/media-and-news/press-
releases/2016/Pag...](http://english.mps.it/media-and-news/press-
releases/2016/Pages/Disposal-of-a-non-performing-loan-portfolio.aspx)

Edit: MPS isn't even loss-making, at the moment. The cliff is not so close.
[http://markets.ft.com/research/Markets/Tearsheets/Financials...](http://markets.ft.com/research/Markets/Tearsheets/Financials?s=BMPS:MIL)

------
vegabook
ahem...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._

------
Red_Tarsius
The 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/uploa...](http://static.fanpage.it/socialmediafanpage/wp-
content/uploads/2013/03/Grillo-Berlusconi-Economist-300x225.jpg). Just
clickbaits and provocations.

~~~
danielvf
If not Italy, what do you think would be Europe's next couple economic crisis
countries?

~~~
yulaow
Here 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-
ba...](https://www.theguardian.com/business/2016/feb/10/deutsche-bank-germany-
financial-colossus-stumbles)

~~~
im3w1l
Agreed. February, when your article was published, isn't these weeks though.

~~~
yulaow
My bad, I just linked the first article I found. They are talking about it a
lot in the news in TV, especially after Brexit

------
jkot
Banks have enough cash to cover 20% of their obligations. I think that is not
that bad.

~~~
djschnei
Good ol' fractional-reserve banking. Wouldn't it be nice if we could all do
that?

~~~
selectodude
Ever taken out a loan with nothing more than a down payment?

~~~
djschnei
Yes, 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.

------
fibo
the 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
How can Switzerland survive on 16%? That is my question.

~~~
adventured
Basically 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.

~~~
sievebrain
This. There are several income taxes.

Also there are lots of hidden costs. Health insurance and mandatory
unemployment insurance etc. A lot of stuff is pushed onto the private sector
but made mandatory, so you have to buy it.

------
DrNuke
No smoke without fire but financial wars in the name of sacred principles are
just the contemporary art of war.

------
timwaagh
if 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
well 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

------
ensiferum
Oh 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
You'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.

------
gg97
I 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.

------
known
Euro is nothing but a
[https://en.wikipedia.org/wiki/Confidence_trick](https://en.wikipedia.org/wiki/Confidence_trick)

~~~
s17tnet
The 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
It'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
The 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)?

~~~
Dylan16807
You can just print more money in proportion to population growth. While
keeping a stable minimum reserve percent.

~~~
blahi
The rich people will be less rich in that situation. They are in a similar
situation now with the current inflation, but growth of money has to be tied
to economic growth or otherwise the rich will feel screwed.

I'm not saying it's good, but you cannot screw the rich. The current situation
is a compromise and a very sensible at that I might add, despite all the noise
from tin-foil hatters.

There are also other, practical consideration which will make what you are
proposing impossible to put in practice for a prolong period of time.

~~~
adventured
The rich do better than everyone else in times of inflation. Their assets are
heavily liquid and easily moved. They have very little to fear from higher
rates of inflation, it enables them to outperform everyone else that is more
income dependent and less asset rich. The poor have the most to fear, by far.
That's also why the rich have done so well since the year 2000, the Fed's
policies have been heavy on dollar debasement since then, which has eroded the
median while the rich have been able to benefit from the Fed's monetary
support of asset prices. The Fed's asset inflation policies are a prime driver
of the growth in wealth inequality in the US.

~~~
naveen99
I would say it's not a rich vs poor issue. The people who lose money with
inflation are the ones who are over exposed to their currency: pensioners
close to retirement, forex traders or foreign governments who bet on that
currency, black market players who have to hold large amounts of cash without
investing it, banks with a lot of fixed 30 year low interest rate mortgages
outstanding. Forex players, banks, and foreign governments can be rich,
pensioners and black market players can be poor.

Banks actually sell most of the mortgages back to the federal government in
the us. Maybe that's the reason us government isn't inflating the dollar too
much. They themselves hold most of it through mortgages.

------
jmspring
It'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.

------
basicplus2
EU 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.h...](http://cecaust.com.au/releases/2014_03_20_Treasury_Bail_In.html)

[http://cecaust.com.au/releases/2015_11_27_G20_Accepts_Bailin...](http://cecaust.com.au/releases/2015_11_27_G20_Accepts_Bailin.html)

[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)

~~~
shoo
Be 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.

~~~
basicplus2
if you follow the links within their articles you will find the hard evidence.

even crazy people sometimes talk about true stuff too.

