Deutsche Bank chief economist calls for bailout of European banks, as Italy faces last ditch efforts to rescue troubled sector

Hayley Kirton
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Italy's banks are burdened by €360bn in bad loans between them (Source: Getty)

As uncertainty from the UK's referendum on EU membership continues to plague the banking sector, Deutsche Bank's chief economist is calling for a bailout of Europe's banks.

In an interview with Welt am Sonntag, David Folkerts-Landau suggested that an injection of fresh capital was needed to help save banks, pegging the amount needed to recapitalise at €150bn (£128bn).

"Europe is seriously ill and needs to address very quickly the existing problems, or face an accident," Folkerts-Landau told the German newspaper, and highlighted that the Italian banks seemed particularly problematic.

Speaking with City A.M., Raoul Ruparel, co-director of Open Europe, described the state of Europe's banks as "a long running problem" which had been "incrementally cleaned up, but there hasn't been a proper wholesale clean up of the system and particularly countries such as Italy have not undertaken a real clean up of their banks."

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Italy's banks, which were already struggling with €360bn in non-performing loans between them, were recently dealt a second blow, after the UK's vote to leave the EU last month sent share prices in banks across the world plummeting.

Shares in Unicredit, Banca Monte dei Paschi di Siena, Banco Popolare and Intesa Sanpaolo were all trading roughly a quarter lower in the week following the referendum.

Michael Hewson, chief market analyst at CMC Markets UK, has previously told City A.M. that failure of the Italian banking sector could topple the banking sector across Europe at large.

"If Italy goes under then it will take the rest of Europe with it," Hewson said.

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Ruparel added: "There's definitely a concern that it could spill over."

It has been widely speculated that Italian Prime Minister Matteo Renzi has been seeking an agreement that would allow the country to inject €40bn worth of capital into the banking system, but this would involve going around an EU directive on the matter.

Ruparel pointed out that Italy never fully went through the process of rejigging its banking system around the time of the financial crisis, whereas many other economies did. "They're in a situation now we're they're realising they need to make the changes, but the new rules are making it much harder," he added.

In his interview, Folkerts-Landau said that he thought the €40bn figure was likely to be a conservative calculation of what was needed to save Italy's banking industry.

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Neither Deutsche Bank nor the Italian Ministry of Economy and Finance have responded to City A.M.'s request for comment at time of writing.

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