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| Italian prime minister tries to buoy shares in Italy's banks | Italian prime minister tries to buoy shares in Italy's banks |
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| Italy’s beleaguered banking sector has been boosted after the European Central Bank and the Italian prime minister sent soothing messages to anxious investors. | Italy’s beleaguered banking sector has been boosted after the European Central Bank and the Italian prime minister sent soothing messages to anxious investors. |
| Shares in Italy’s troubled banking sector recovered on Thursday following weeks of freefall, after the ECB president Mario Draghi said there were no plans to demand tougher provisions to cover the country’s bad debt pile. Italy’s banks have some €201bn (£154bn) in non-performing loans (NPLs) which are unlikely ever to be paid back and which are restraining the country’s sluggish economic recovery by putting a brake on the release of new credits. | Shares in Italy’s troubled banking sector recovered on Thursday following weeks of freefall, after the ECB president Mario Draghi said there were no plans to demand tougher provisions to cover the country’s bad debt pile. Italy’s banks have some €201bn (£154bn) in non-performing loans (NPLs) which are unlikely ever to be paid back and which are restraining the country’s sluggish economic recovery by putting a brake on the release of new credits. |
| However, the Italian leader, Matteo Renzi, underscored the ECB’s positive comments to help buoy shares in the country’s largest banks. “The situation is much less serious than the market thinks,” Renzi told reporters in Rome, adding that his economy minister was “working miracles” trying to find a solution with Brussels to Italy’s bad loan problem. | However, the Italian leader, Matteo Renzi, underscored the ECB’s positive comments to help buoy shares in the country’s largest banks. “The situation is much less serious than the market thinks,” Renzi told reporters in Rome, adding that his economy minister was “working miracles” trying to find a solution with Brussels to Italy’s bad loan problem. |
| The Italian banking index closed up 6.9%, ending a rout which had seen it lose nearly a quarter of its value this year. The country’s third largest lender, Monte dei Paschi di Siena, led the recovery, jumping 43%. However, that still left it down 40% on the month, battered by concerns over its bad loans which total more than a fifth of all its loans – the highest such ratio in Italy. But volatility in the sector, coupled with escalating tensions between Italy and the EU on a broad range of topics, have generated fear that the country could be inching towards a financial crisis. | |
| Worries over the high number of bad loans to small businesses – which have struggled during the prolonged Italian recession – and clashes between Italy and Brussels over how it ought to tackle the complex problem, coupled with concern over the ability of the government to manage a potential financial crisis, have created a sense of unease in the markets. | Worries over the high number of bad loans to small businesses – which have struggled during the prolonged Italian recession – and clashes between Italy and Brussels over how it ought to tackle the complex problem, coupled with concern over the ability of the government to manage a potential financial crisis, have created a sense of unease in the markets. |
| The turbulence comes at a time when the economic outlook in Italy was improving after years of recession and sluggish growth. “There is a sense of vulnerability and the markets decided to test it,” said analyst Wolfango Piccoli, co-president of Teneo Intel. | The turbulence comes at a time when the economic outlook in Italy was improving after years of recession and sluggish growth. “There is a sense of vulnerability and the markets decided to test it,” said analyst Wolfango Piccoli, co-president of Teneo Intel. |
| Opinions vary about the precise cause of the sell-off in recent weeks, which at one point saw Monte dei Paschi di Siena lose almost half its stock market value. | Opinions vary about the precise cause of the sell-off in recent weeks, which at one point saw Monte dei Paschi di Siena lose almost half its stock market value. |
| One area of concern remains over the Renzi government’s plan to create a so-called “bad bank”, possibly underpinned by state guarantees. | One area of concern remains over the Renzi government’s plan to create a so-called “bad bank”, possibly underpinned by state guarantees. |
| Italian officials have been in protracted talks with the EU over the plan, details of which are still being hammered out, for hundreds of billions of euros in bad loans to be unloaded from the banks in order to alleviate pressure on the financial services sector. | Italian officials have been in protracted talks with the EU over the plan, details of which are still being hammered out, for hundreds of billions of euros in bad loans to be unloaded from the banks in order to alleviate pressure on the financial services sector. |
| However, one complicating factor is that under EU rules that became significantly tougher from 1 January, any creditor in a failed bank must first take a significant financial hit before the state lends aid to it. | However, one complicating factor is that under EU rules that became significantly tougher from 1 January, any creditor in a failed bank must first take a significant financial hit before the state lends aid to it. |
| Francesco Galietti, an analyst at Policy Sonar in Rome, said the rebound in some banking shares on Thursday was potentially a temporary reprieve. | Francesco Galietti, an analyst at Policy Sonar in Rome, said the rebound in some banking shares on Thursday was potentially a temporary reprieve. |
| “I wouldn’t say it is over,” he said. “Everyone is giving the government some extra hours to come up with a solution. Once there is a solution, it will either stabilise the situation or things will come sharply down.” | “I wouldn’t say it is over,” he said. “Everyone is giving the government some extra hours to come up with a solution. Once there is a solution, it will either stabilise the situation or things will come sharply down.” |
| Italy’s ability to deal with any potential financial crisis down the road was called into question late last year following what was seen as a botched bailout of four regional banks, in which a number of pensioners lost their savings. | Italy’s ability to deal with any potential financial crisis down the road was called into question late last year following what was seen as a botched bailout of four regional banks, in which a number of pensioners lost their savings. |
| Regardless of the internal and external factors fueling the concern, Piccoli added, the sell-off has created a “significant political emergency” for Matteo Renzi, Italy’s prime minister. | Regardless of the internal and external factors fueling the concern, Piccoli added, the sell-off has created a “significant political emergency” for Matteo Renzi, Italy’s prime minister. |
| Renzi has sought to downplay any concern over the volatility. In an opinion piece published in the Guardian on Thursday, the prime minister acknowledged that “Italy still has a lot to do to re-establish its rightful position” in Europe and that the recent “turbulence” in its banking sector showed that it needed to have fewer but stronger banks. | Renzi has sought to downplay any concern over the volatility. In an opinion piece published in the Guardian on Thursday, the prime minister acknowledged that “Italy still has a lot to do to re-establish its rightful position” in Europe and that the recent “turbulence” in its banking sector showed that it needed to have fewer but stronger banks. |
| Related: Europe isn’t working for this generation | Matteo Renzi | Related: Europe isn’t working for this generation | Matteo Renzi |
| He emphasised that Italy’s credit was nevertheless “solid and strong thanks to Italians’ extraordinarily high household savings”. “When the market speaks, as it has done in recent days, it is right that bank executives and shareholders comprehend the need for serious and swift intervention,” he said. | He emphasised that Italy’s credit was nevertheless “solid and strong thanks to Italians’ extraordinarily high household savings”. “When the market speaks, as it has done in recent days, it is right that bank executives and shareholders comprehend the need for serious and swift intervention,” he said. |
| The current tumult comes at an already tense time for Renzi, who has been increasingly vocal about his displeasure with the EU and particularly Germany over issues ranging from migration to energy policy. | The current tumult comes at an already tense time for Renzi, who has been increasingly vocal about his displeasure with the EU and particularly Germany over issues ranging from migration to energy policy. |
| It is a swift about-face for Italy’s 41-year-old prime minister, who seems to be reacting not only to legitimate gripes with Europe, but also responding to increasing domestic pressure to talk tough with Europe. | It is a swift about-face for Italy’s 41-year-old prime minister, who seems to be reacting not only to legitimate gripes with Europe, but also responding to increasing domestic pressure to talk tough with Europe. |
| Renzi’s most potent political rivals – the populist Five Star Movement headed by former comedian Beppe Grillo, and the rightwing Northern League, headed by Matteo Salvini – are both harsh critics of the EU and the perception that he has been too compliant with demands from Brussels and Berlin. |