Look Who’s Frantically Demanding that Taxpayers Stop Italy’s Bank Meltdown
- Look Who’s Frantically Demanding that Taxpayers Stop Italy’s Bank Meltdown
by Don Quijones, http://wolfstreet.com/
New Opportunities for “America’s Most Corrupt Bank.”
It was a perfect gift to a desperate market. All that was needed was a gentle hint that Italy’s troubled banks and their bondholders might not be hung out to dry. A “public backstop” for Italy’s weakest lenders would be a “very useful” measure in these “exceptional times,” ECB President Mario Draghi said.
Most Italian and European bank stocks surged.
The ECB is the second member of the institutional triad formerly known as the Troika to have called for a taxpayer funded bailout of Italy’s banking system. Earlier this month the IMF used its article IV consultation – an annual economic and financial health check – to warn of “global spillovers” from a full-blown Italian banking crisis, “given Italy’s systemic weight.”
Desperate times call for “significant measures,” says IMF economist Juan Toro. These measures include a taxpayer-funded state intervention, a practice that was supposed to have been consigned to the annals of history by Europe’s enactment of new bail-in rules on Jan 1, 2016. The idea behind the new legislation was simple: never again would taxpayers be left exclusively paying to bail out bondholders of Europe’s insolvent banks.
But even before the ink has dried, the new rules are about to be broken, or at least bent beyond recognition. Apparently this is necessary for two main reasons:
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