In a long interview with CNBC-TV, Italian Prime Minister Matteo Renzi said that his government will oppose a bail-in with all its force. In his broken English, Renzi said, “Italy is totally fighting for avoid bail-in because also soft bail-in could be a disaster for the credibility and for the confidence.” Renzi also said that the only solution for Italian banks is “growth,” and that how to achieve growth is “my dream and my nightmare.”
Well, now that he has violated EU rules on bail-in, Renzi should take the next step and violate EU budget rules in order to implement a growth program. In a discussion Tuesday morning, Lyndon LaRouche stressed that although this is not a national but a global crisis, Italy must implement a law for a national credit program for recovery, and European nations should cooperate for national self-defense. This will then “cause the whole [EU/euro] program to be re-examined,” LaRouche said.
Anything else is not going to work. Take the “solution” adopted for Monte dei Paschi di Siena (MPS), which nobody is trusting. Monday and Tuesday, Italian banks, as well as other European banks, were hit by head-for-the-exits selling. Unicredit stock trading was suspended both days after having fallen almost 10% on Monday and 5% on Tuesday. The 70% discounted price for MPS’s non-performing loans has been seen as a benchmark for future deals, thus forcing other banks with NPLs to recapitalize.
The Financial Times published a chart with the loss in value of five major European banks since the stress tests results were published on Friday: Unicredit -15.9%; Commerzbank -11.2%; Deutsche Bank -6.6%; Credit Suisse -6.1%; Barclays -5.4%.
In the context of no economic growth and a zero/negative interest rate policy, there is no chance that any bank can recover. And now the ECB is also driving corporate finances into bankruptcy. Bloomberg has reported that the ECB purchases of corporate bonds are driving down yields, which last week were at an astonishing 0.7%.
Second quarter figures for Eurozone GDP show a 0.3% (non-) growth, while a review of public investment rates to GDP show a decline of greater than 1% in the 2009-2016 period. This means a loss of EU115-120 billion in investments.