“Italy: Banking Crisis Or Euro Crisis?”

In the News (Social Europe): “Italy is once again in the spotlight. As its banking system undergoes a slow-motion implosion – the country’s banks are weighed down by €360 billion of bad loans, of which €200bn are deemed insolvent …a last-minute quick fix that would temporarily appease market tensions but would do very little to address the underlying cause of the banking sector’s systemic stress: the unprecedented collapse that the Italian economy has suffered over the past 5-6 years. …

“The crisis is ‘the consequence of the longest and deepest recession in Italy’s history’, as the governor of the Italian central bank, Ignazio Visco, recently stated. As financial journalist Matthew Lynn writes: ‘Italy doesn’t have a banking crisis; it has a euro crisis’.

In macroeconomic terms, Italy has been the hardest hit country in the eurozone after Greece. … around 20 per cent of Italy’s industrial capacity has now been destroyed. …

“This is not just an Italian problem: the ECB’s recent stress tests have revealed that the banks with the largest capital shortfalls are all located in periphery countries. According to a recent study, for the EU as a whole, non-performing loans (NPLs) stood at over 9 per cent of GDP at the end of 2014 – equivalent to €1.2 trillion, more than double the level in 2009.

“Now, after years of muddling through, the situation has finally exploded in the Italian government’s face. The proverbial straw that broke the camel’s back was the British referendum, which caused Italian bank stocks, which had been sliding for quite some time, to collapse to their lowest level in years. …

“The European Commission and core countries – most notably Germany and the Netherlands – insist that Rome must stick by the rules and enforce a bail-in of junior creditors before resorting to a bailout. The government categorically refuses to do so and has insisted on being allowed to bail out the banks – a position backed by the ECB – while engaging in a wider battle against the current set-up of the banking union. Mr Visco, for example, has recently stated that that the current bail-in rules are exacerbating the Italian banking crisis rather than alleviating it. …

“Now, it would be easy to classify this as a classic example of Italian dodginess… . And one would be justified for doing so. But this doesn’t change the fact that the bail-in rule is making things worse for the weaker banking sectors of the union – and for Italy’s banking sector in particular. And that is because enforcing the bail-in rule across the board, making it mandatory, as the banking union does – regardless of the nature of the banks’ problems, of the wider macroeconomic context of a country, etc. – clearly penalises the weaker capitals of the union (the ones located in the periphery) vis-à-vis the stronger ones (the ones located in the core countries), potentially leading to a foreign takeover of the former by the latter, thus exacerbating, rather than reducing, the core-periphery imbalances.”

My Comment: It is basically impossible to integrate something partially! Because every integral system (an interconnected unit) is totally interdependent. And if it is partly dependent, in conditions of the development of the world and society toward complete integration according to the laws of nature, partial dependency will only continually initiate more and more problems in communication in order to reveal its partial connection.

But it is dangerous to destroy this partial connection, because even the destruction of bad ties will unbalance the system and disrupt its partial operation, and so in the long run, the problem will be resolved either by accepting the right method of connection and unity (on the level of re-education of the participants) or by a world war.
[194099]