When banks are involved in a credit crise, state aids are allowed in some countries (e.g. Germany) and forbiden in other ones.The odd case of four Italian banks.
It is a simple case of political schizophrenia between macro and microeconomic policies, or a tug of war between those who want to save the euro "whatever it takes" and those who want to blow it up?
On the one hand we have Draghi’s QE, injecting tens of billions of euro in financial circuits, on the other one an European Commission arguing fiercely about ridiculous percentages of public deficit, while Juncker’s investment plan proceeds with the speed of a turtle. Meanwhile, the European Banking Authority (EBA) requires continuous increases of capital by banks and the Bank Recovery and Resolution Directive (BRRD) makes it more expensive to raising capital from banks. We start from BRRD: it states that shareholders, bondholders and depositors over 100,000 euro will have to bear losses in the event of a crisis of their own bank. The objective, as any economist may explain, is to avoid moral hazard, i.e. excessive risk-taking by the bank management.
This is a déjà vu. Merkel and Sarkozy during a walk, on 19 October 2010 in Deauville declared that the underwriters of the public debt had to pay their part, in the event of default. The Italian and Spanish interest rates began to soar and citizens of the two countries learned the meaning of the word “spread”. Paul De Grauwe wrote (May 10, 2011) an article on Vox "Managing a fragile Eurozone", in which he pointed out as the UK, despite having an higher deficit and debt than Spain, had lower interest rates. The reason is because behind the British public debt there is the Bank of England, while behind the Spanish debt there is not the ECB.
It was Draghi’s famous statement of July 2012 that brought down interest rates to the current levels, not the austerity measures by Italian and Spanish governments. Note that the ECB and the Commission allowed the French and German banks, full of Greek bonds, to save their investments, and only then a partial default occurred. Even in the case of Irish banks the bailout was on the shoulders of Irish taxpayers, saving the European (mainly British) bank lending (in Ireland the public debt moved in three years from 42.4 to 109.3). As for State aid granted to banks in some European countries, at the end of 2014 they amounted to 238 billion euro in Germany (8.2 percent of GDP), 52 billion in Spain (5.0 percent), 42 billion in Ireland (22.6 percent), 40 billion in Greece (22.2 per cent), 36 billion in the Netherlands (5.5 percent), 28 billion in Austria (8.4 percent), 19 billion both in Portugal (11.0 per cent) and Belgium (4.6 percent).
At that date there had been a public intervention of about 1 billion in Italy, now recovered. But in recent days the crisis of four small banks in central Italy has seen the Commission in the role of attentive guardian of Italian taxpayers. In fact the Italian proposal to safeguard subscribers of subordinate bonds (340 million over 12 billion creditors - depositors or senior bondholders - 2.8%) was rejected by the Commission. This is the statement of the head of the Banking and Financial Supervision of the Bank of Italy to the Chamber of Deputies: "It is at this point showed the availability of the Interbank Deposit Protection to take charge of this issue, absorbing the risks relating to impaired loans . Assistance from the Fund would allow, together with the resources contributed by other banks, to establish the foundations for overcoming the crisis without any sacrifice for the creditors of the four banks. This was not possible for foreclosure manifested by offices of the European Commission, that we have not shared, since they felt to assimilate to State aid the operations of the deposit insurance ".
That the intervention of the Interbank Fund (formed with bank capital) constitutes State aid is something quite mysterious. Perhaps the fact that it is a compulsory fund? Perhaps the fact that there is a representative of the Bank of Italy among members of the board? An Italian politician, Giulio Andreotti (crossroads between the Vatican and the Mafia) said that to think evil is a sin but one guesses. The thought is that the very rigid attitude towards Italy depends on the attempt to hit the country, so that, due to its high public debt, it may trigger the euro crisis.
The Bundesbank (and its satellites) is opposed to QE because it reduces interest rates, and because it allows euro-south banks to dispose of a portion of government securities purchased (with funding from the ECB) during the re -nationalization of country public debt. It is opposed to a European deposit guarantee fund because it is too much like a sharing of risk, that is a transfer union. Of course it is opposed to any measure of true revival of investments on a European scale.
It may be interesting to know that about 10,000 subscribers of bonds are formed for half by the employees of the four banks, and half normal depositors, often older people. It is very likely that older people were in total ignorance on risk taking; perhaps they were attracted by the higher rate of return, and certainly by the reassuring words of the bank officials. But for employees it is a different matter; they could not ignore the risks, and they were certainly aware of the serious problems of the banks they worked for. Rather, willingly or not, they have accepted the suggestion (or blackmail) that "if you want to save your job subscribe to the bonds."
The BRRD may also be a reasonable measure, if applied to new creditors from 2016 onwards, or, if you really want to speed up, forcing all banks to inform customers of the risks involved with the subordinated bonds or deposits over the 100,000 euro and making the changes required (without losses) by the customers themselves. The suspicion that the Commission use different criteria between countries is strengthened by what happened on October 19; the European Commission approved the rescue plan of HSH Nordbank, which specializes in ship financing, with a majority owned by the regional government of Schleswig Holstein and Hamburg. Banks in financial difficulties for some time will be subject to a liquidation or a sale enjoying, however, guarantees 3 billion of the German state.