This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.theguardian.com/world/2018/oct/21/fears-about-italian-banks-expected-to-grow-following-downgrade

The article has changed 3 times. There is an RSS feed of changes available.

Version 0 Version 1
Italian bank fears expected to grow after debt downgrade Italian bank fears expected to grow after debt downgrade
(35 minutes later)
Fears that Italy’s banks face a black hole in their finances are expected to grow this week following a debt downgrade that could send the value of bank reserves plummeting.Fears that Italy’s banks face a black hole in their finances are expected to grow this week following a debt downgrade that could send the value of bank reserves plummeting.
Despite efforts to shore up the reserves of Italian banks, a downgrade by the ratings agency Moody’s on Friday following a row between Rome and Brussels over the government’s budget could send banks into freefall again. Despite efforts to shore up Italian banks’ reserves, a downgrade by the ratings agency Moody’s on Friday following a row between Rome and Brussels over the government’s budget could send them into freefall again.
On Sunday, a senior government official issued a warning that Italy should not ignore the deteriorating financial situation and its effect on the country’s banks, including possible capital needs, adding to the tension. A senior government official added to the tension on Sunday by issuing a warning that Italy should not ignore the deteriorating financial situation and its effect on the country’s banks, including possible capital needs.
Giancarlo Giorgetti, cabinet undersecretary, said in a newspaper interview that a fire sale of Italian government bonds over the last five months had put huge pressure on bank reserves and could trigger a second crisis in two years. The budget plans of Italy‘s populist government, which breach European Union borrowing rules, have prompted investors to shed 67bn euros ($77bn) of Italian government bonds since May. The effect has been to push values down and the interest rate on government bonds, referred to as the yield, to more than three percentage points higher than safer German bonds. Giancarlo Giorgetti said in a newspaper interview that a fire sale of Italian government bonds over the last five months had put huge pressure on bank reserves and could trigger a second crisis in two years. The budget plans of Italy‘s populist government, which breach EU borrowing rules, have prompted investors to shed €67bn ($77bn) of Italian government bonds since May. The effect has been to push values down and the interest rate on government bonds, referred to as the yield, to more than three percentage points higher than safer German bonds.
“The increase in the [bond yield] spread, the amount of public debt banks hold and new European Union banking rules put the industry under pressure and may generate the need to recapitalise the most fragile lenders,” said Giorgetti, who is an influential member of the far-right League, one of the two parties in Italy’s ruling coalition.“The increase in the [bond yield] spread, the amount of public debt banks hold and new European Union banking rules put the industry under pressure and may generate the need to recapitalise the most fragile lenders,” said Giorgetti, who is an influential member of the far-right League, one of the two parties in Italy’s ruling coalition.
Italian banks have bought billions of euros of their own government’s bonds in the past 18 months, in apparent contradiction of efforts to stabilise their finances and diversify their reserves into other assets. In response, investors have taken flight from Italian bank shares, which trade at a fraction of the value of their assets. Without recourse to investors, bank chiefs would be left seeking a further bailout from ministers. However, growing uncertainty over Italy’s prospects would make it hard for them to raise capital. Italian banks have bought billions of euros of their own government’s bonds in the past 18 months, in apparent contradiction of efforts to stabilise their finances and diversify their reserves into other assets. In response, investors have taken flight from Italian bank shares, which trade at a fraction of the value of their assets.
“We can’t just pretend nothing is happening and ignore these problems,” Giorgetti said, adding that the government was made up of “responsible people who would do things responsibly”. Without recourse to investors, bank chiefs would be left seeking a further bailout from ministers, but growing uncertainty over Italy’s prospects would make it hard for them to raise capital.
After initially rebuffing criticism from Brussels over a sharp deficit increase in the draft 2019 budget, which the European commission has labelled an “unprecedented” breach of EU fiscal rules, Italy appeared to have softened its stance. “We can’t just pretend nothing is happening and ignore these problems,” Giorgetti said. The government was made up of “responsible people who would do things responsibly”.
On Saturday, prime minister Giuseppe Conte said Rome wanted to establish a “constructive dialogue” with the EU over the budget because it recognised the role of European institutions. After initially rebuffing criticism from Brussels over a sharp deficit increase in the draft 2019 budget, which the European commission has labelled an unprecedented breach of EU fiscal rules, Italy appears to have softened its stance.
The country’s prime minister, Giuseppe Conte, said on Saturday that Rome wanted to establish a constructive dialogue with the EU over the budget because it recognised the role of European institutions.
The government asked Brussels to sanction a 2.4% annual spending deficit next year that would increase the country’s total debt to GDP level, which is currently the second highest in the EU behind Greece at 131%.The government asked Brussels to sanction a 2.4% annual spending deficit next year that would increase the country’s total debt to GDP level, which is currently the second highest in the EU behind Greece at 131%.
“The 2.4% figure is a ceiling for all the various measures included in the budget, but it’s not a given that all of them can be implemented because there could be technical difficulties,” Giorgetti said.“The 2.4% figure is a ceiling for all the various measures included in the budget, but it’s not a given that all of them can be implemented because there could be technical difficulties,” Giorgetti said.
The coalition comprising the League and the anti-establishment 5-Star Movement wants to boost deficit-spending to lower the retirement age and provide a basic income for the poor. The coalition made up of the League and the anti-establishment Five Star Movement wants to boost deficit-spending to lower the retirement age and provide a basic income for the poor.
Moody’s said it downgraded Italy’s rating to Baa3, its lowest investment grade, from Baa2 in response to the high level of debt and lack of GDP growth, though it said the country’s trade surplus and high levels of private savings meant it was unlikely to go bust. Moody’s said it had downgraded Italy’s rating to BAA3, its lowest investment grade, from BAA2 in response to the high level of debt and lack of GDP growth. It said, however, that the country’s trade surplus and high levels of private savings meant it was unlikely to go bust.
ItalyItaly
EuropeEurope
BankingBanking
newsnews
Share on FacebookShare on Facebook
Share on TwitterShare on Twitter
Share via EmailShare via Email
Share on LinkedInShare on LinkedIn
Share on PinterestShare on Pinterest
Share on Google+Share on Google+
Share on WhatsAppShare on WhatsApp
Share on MessengerShare on Messenger
Reuse this contentReuse this content