DEBATE: Was the Italian government right to commit €17bn to rescuing two failing banks?
YES – Kay Swinburne, Conservative MEP and vice chair of the Committee on Economic and Monetary Affairs.
The consolidation of the Italian banking sector is long overdue. Their network of small lenders was unsustainable and adding to instability across the EU’s banking sector. Now the government has injected capital into a non-failing bank to allow it to take on the liabilities of the two failed banks while maintaining its capital requirements. I am in principle not a supporter of bailing out banks using taxpayers funds, but this move will hopefully shore up the financial system and provide a bridge to further consolidation within Italy. However, the whole point of putting in place new EU-wide capital requirements legislation and the directive on bank recovery and resolution was to avoid finding ourselves in the situation where taxpayer money was once again necessary. The fact that this was the only option left to the Italian government to avoid a regionwide economic collapse is a damning indictment of the EU’s post crisis response. Continental Europe has not addressed the huge problem of non-performing loans since the crisis. Emergency measures will not solve the underlying problem.
NO – Shaun Richards, independent economist.
The problem with the rescue of the banks in the Veneto region of Italy is highlighted by the use of the word “bailout” to describe it. This is because the road to European Banking Union was supposed to be paved with bail-ins instead. This means that investors in the bank, including in some bonds, find their assets liquidated to help and hopefully completely finance the rescue, as opposed to taxpayers footing the whole bill. By contrast, Italy decided it is a special case, as politics trumped finance and economics. Such a move was driven by the fact that the debt of these banks had been mis-sold to depositors looking for more income in these times of low interest rates. So a bail-in would have caught the average Italian Joe as well as the professional investors it was designed to. We are left thinking that this situation would have been much cheaper for the Italian taxpayer if action had been prompt rather than dilatory and delayed.