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Economy Minister Padoan gets vote of confidence on banking talks from Germany’s Merkel

by Beda Romano

Italian Economy Minister Pier Carlo Padoan, encouraged by the support of Chancellor Angela Merkel, used yesterday’s Ecofin in Brussels to reassure the markets, the Italian people and his partners about Italy’s banking system's solidity.

Prime Minister Matteo Renzi’s government is currently negotiating with EU authorities in Brussels to nail down a possible precautionary recapitalization of banks that are likely to have a shortfall after selling their non performing loan portfolios, without asking to make any “exceptions” to the implementation of community rules.

The meetings Monday and Tuesday have been useful for Brussels and Rome to better understand the position of all parties involved. According to sources in Brussels, the informal talks made it possible to understand that many countries are sensitive to Italy’s situation and they realize that the recent volatility of the market due to Brexit has penalized the balance sheets of several banks.

Having said that, they are not willing to allow exceptions that are not included in the rules.

And also yesterday, in Berlin, Chancellor Merkel confirmed that Germany is ready to support Italy’s request.

“I firmly believe that the situation (…) will be properly fixed. I don't see any general crisis approaching.”

During a press conference at the end of a two-day meeting of the European finance ministers, Padoan explained that there is a common “misperception” of the Italian banking system’s situation. Talk of a “high risk” for financial stability “is completely baseless.” The banking system “remains solid,” even if in some cases the situation is critical. Padoan pointed out that the same difficult situations also exist in other European countries.

The Italian government and the European Commission have been negotiating possible precautionary recapitalizations for weeks now, in order to help a banking system jeopardized by many non-performing loans, “with the purpose of supporting market transactions,” said the minister. Padoan also pointed out that any public intervention “will take place in full accordance with the rules.”

Padoan said to CNBC television news network he is “confident” about the ability of the parties involved to find an agreement “soon.”

The duration of the negotiations is still uncertain. Will Brussels and Rome want to wait for the publication of the results of the stress-test (on July 29), or will they choose to play in advance?

All partners are following the Rome-Brussels talks closely. Officially, the issue was not discussed during the two-days meeting. Among the main points to discuss there is the investors’ role in the event of a state intervention, as established by the European regulation. Italy is demanding the safeguard of investors, but Brussels is hesitating. Yesterday Padoan stressed the need for the “maximum protection of savers.”

On the other hand, the minister said nothing about institutional investors, those who risk the most from a bank rescue. About the ongoing negotiations, the minister described the relationship with the European Commission “very good, very constructive.”

And he added that “rules are binding for everybody,” but also that a solution in the framework of the rules in force is actually possible. Answering to a question about an Italian plan already on the table, Padoan said that there are “several options being examined.”

On the contrary, the financial expert George Soros warned in an article on The Guardian that Italy “could be the next cause of distress” for Europe after Brexit, due to the combination of “banking crisis and coming October referendum” about the reform of the Senate. He explained that Italian Prime Minister Matteo Renzi “will lose the referendum if he does not fix the banking crisis in time.”

To get through it, the Italian Prime Minister “needs the help of European authorities. But they are too slow and unbending.”