
Italian banking is the next shoe to drop - jseliger
http://marginalrevolution.com/marginalrevolution/2016/07/italian-banking-next-shoe-drop.html
======
pitt1980
How did Iceland recover from it's banking crisis?

\---------

Iceland's rapid return to health hinged on a series of measures that Nobel
laureate Paul Krugman later referred to as "doing an Iceland." Krugman, an
admirer of Iceland's dramatic comeback, has recommended a similar policy
cocktail for other nations in crisis. The rules are as follows: Allow your
ailing banks to collapse; devalue your currency if you have one of your own;
introduce capital controls; and try to avoid paying back foreign debts.

That may sound like an extremely self-serving recipe -- and it was. Whereas
billions of public money was pumped into the banking system in Ireland so that
financial institutions could pay back their creditors, Icelanders voted
against this route in two separate referenda. They couldn't see why they
should pay for the greed of foreign investors who followed the Siren song of
high interest rates to the island nation.

Jónsson only shakes his head wearily when asked if he has a guilty conscience.
He claims to have been one of the few who warned of the currency bubble long
before it burst. Now, he is excited about the country's new opportunities,
which are remarkably similar to the ones it has always had. "A hard-working
populace. A healthy democracy. A high level of education. Tourism. Natural
resources, such as wind, hydro-power and geothermal energy. And fisheries.
What would we be without the fisheries?"

[http://www.spiegel.de/international/europe/financial-
recover...](http://www.spiegel.de/international/europe/financial-recovery-of-
iceland-a-case-worth-studying-a-942387.html)

~~~
RcouF1uZ4gsC
I think the major difference is that Iceland had its own currency and
flexibility with regards to how it managed its banks. Italy, on the other hand
is bound by the Euro and the EU banking regulations. This seems like it will
not end well.

~~~
digitalengineer
Luckey for Italy the President of the ECB is Mario Draghi, former governor of
the Bank of Italy...

------
digitalengineer
It really is. The new EU laws prohibit bail-outs with tax money. First the
bond holders and savers have to pay. But in Italy that's the Italian public.
You know, the people doing the _voting_. No change the Italian government will
accept that. The Italians will want to hand out support-loans and guarantees.
and that brings us to yet another EU law (the 2006 banking rules) that will be
ignored because if the Italian banks fail, so will Deutsche Bank from Germany.
The other important rule, the one regarding the Stability & Growth Pact(1), is
ignored by almost all EU countries. (1)
[https://en.wikipedia.org/wiki/Stability_and_Growth_Pact](https://en.wikipedia.org/wiki/Stability_and_Growth_Pact)

~~~
AnimalMuppet
How will the failure of Italian banks take down Deutche Bank? Does it hold too
much stock or bonds in Italian banks?

~~~
digitalengineer
Yes, they're all connected through taking up each other's debt. See this 3
minutes video (both rather funny and sad really).
[https://www.youtube.com/watch?v=vnuAh3esdpE](https://www.youtube.com/watch?v=vnuAh3esdpE)

