The ECB can break the impasse by putting pressure on Rome to approve the European Stability Mechanism treaty - see also reply letter from Sabatini of Italian Bankers Association.
Much progress has been made to make euro area banks more resilient. The woes affecting US regional banks, not to speak of Credit Suisse, did not infect eurozone lenders. Tighter regulation leading to higher levels of liquidity and capitalisation, while costly for the banks, has contributed to this stability.
Another vital plank propping up confidence in euro area banks is the single resolution mechanism. At the end of this year, the eight-year period will conclude during which banks contributed to the single resolution fund (SRF). The fund will then have amassed ammunition of up to €80bn, which it is to use to support European banks that get into trouble, thus avoiding the politically contentious taxpayer bailouts of the past. In the case of Spain’s Banco Popular, the system has been tested and proved that it functions in practice.
But don’t hold your breath. A critical gap remains in the resolution architecture. The European Stability Mechanism is meant to act as a backstop that could at short notice double the SRF’s firepower. Flexibility to mobilise the ESM’s resources is essential to maintain confidence, in case larger banks are in trouble. But one big obstacle stands in the way of the ESM’s role of supporting the euro area’s banks in times of crisis.
This obstacle is called Italy. Successive Italian governments have refused to ratify the treaty that would allow the ESM’s enhanced role. Recently, prime minister Giorgia Meloni hinted at a trade-off: Italian approval of the ESM treaty in return for more lenient fiscal rules for EU member states. These two issues are entirely unrelated and Rome’s position is nothing short of blackmail. What irks Italy is an obsessive fear of getting into a situation similar to Greece a decade ago.
In Italian politics, the term “ESM” is equivalent to economic pain and austerity. The loss of sovereignty implicit in being bossed around by outsiders about which policy choices the government should embark on seems too much to bear. Maybe the famous 2011 letter by European Central Bank president Jean-Claude Trichet to the late Silvio Berlusconi, then prime minister, still haunts parts of the political class. Trichet was very explicit about the concrete steps the Italian government should take to mitigate the crisis. Shortly thereafter, Berlusconi resigned and was replaced with the technocrat Mario Monti...
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Letter in reply:
Italian banks no longer conform to old narratives
From Giovanni Sabatini, General Manager, Italian Banking Association, Rome, Italy
© FT plc
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