What changes for banks after Italy’s No to the ESM?
Effects and scenarios for banks after Italy's No to the modification of the ESM treaty. The reassurances of Patuelli (Abi) and Giorgetti (Minister of Economy), the words of Padoan (Unicredit) and the analysis of Liturri (La Verità)
Without Italy's ratification of the ESM treaty amendment, will Europe be left without a safety net in the event of a banking crisis?
This is the question that is gripping professionals in recent days after the No vote from the Chamber.
GIORGETTI'S WORDS
Will there be consequences for failure to ratify the ESM reform? “I think we have the most solid banking system in Europe, the recapitalization and capitalization of Italian banks at the moment is exceptional, I don't think there will be any consequences,” said the Minister of Economy, Giancarlo Giorgetti, in his speech to the Budget Committee in the Chamber, as part of the examination of the Maneuver. “An additional tool with respect to situations of potential danger would have been more convenient,” said Giorgetti, but “the ESM is neither the cause nor the solution to our problem, which is called debt. We must focus on the fact that this debt must be brought under control, otherwise this country cannot cope."
WHAT CHANGES FOR THE BANKS AFTER ITALY'S VOTE ON THE ESM
Without Italy's ratification of the ESM treaty amendment, will Europe be left without a safety net in the event of a banking crisis? Analyst Giuseppe Liturri actually answers the question today: “What the ESM could do in the event of a banking crisis has been known for 9 years and the answer is always the same: little more than nothing. Whether it intervenes directly, as it could already do in theory, or intervenes by financing the Srf", writes Liturri in the newspaper La Verità , commenting on an article in the Corriere della sera by Federico Fubini: "At the Corriere they then forgot the existence of the assistance indirect financing (Article 15 of the Treaty) under which a Member State requests a loan specifically intended for the recapitalization of banks in difficulty. Spain used it in 2012, obtaining 100 billion and using 41.3 of which the last repayment installment (to date 23.7 billion remains) is scheduled for 2027. In both cases, it must be the Member State that advances the request to the ESM Board of Governors".
THE TRUE IMPACT OF ITALY'S VOTE ON THE AMENDMENT TO THE ESM TREATY
The analyst therefore downplays the systemic impact in Europe after the Italian parliamentary vote: "So it is not clear how and when the ESM "parachute" loan, equally modest and contained in the rejected reform, could have been the keystone in the case of banking crisis. But, in both cases – with or without reform – the entry of the ESM provides for the mandatory bail-in of shareholders, bondholders and depositors over 100 thousand euros. A real bloodbath, because, as the director general himself claimed at the time, the ESM must minimize the risks of losses, otherwise the triple A rating would falter. But the uselessness – to be cautious – of the reform is demonstrated also by the fact that the SRF, before resorting to the ESM, must try to finance itself on the market or by resorting to extraordinary contributions from the banks that govern it. It has already happened in Italy to the Interbank Fund for the protection of deposits during the 2014/2015 crisis. And who, if any, would finance the banks? The ECB, without limits. Suffice it to consider that the long-term financing lines opened by the ECB to eurozone banks to guarantee the liquidity of the system reached approximately 2,200 billion in 2022 and are still equal to 496 billion. Is the difference in magnitude clear compared to the 68 billion ESM loan, which is also subject to Byzantine constraints and conditions? In the event of a crisis, the first line of defense is that of the bail-in combined with the contributions of healthy (and profitable) banks which would pay extraordinary contributions to the SRF, financed by the ECB".
WHAT HAPPENS TO THE SRF FUND
Liturri recalls that "from January 1st the SRF will be fully mutualised. That is, the entire fund will be available to all banks that may be in crisis, regardless of their country of origin. This means that those who may have to manage larger disruptions (Germany?) have an interest in the SRF being as large as possible (even with ESM loans), because in this way they could benefit from the contributions of the banks of the other member states. Instead, now, having exhausted the common fund, it must immediately get its hands on the money of its taxpayers, after having duly fleeced the unfortunate savers. It is a safe bet that, in the event of a crisis, SRF and ESM will be kept away like the plague."
WHAT PATUELLI SAID ABOUT THE VOTE OF THE CHAMBER
On the other hand, it was already the president of the Italian banking association, Antonio Patuelli (in the photo) who threw water on the fire of the political controversies with related snorts attributed to the European palaces after Italy's no to the ratification of the changes to the ESM, i.e. in in particular the backstop for the Srf Fund ( here is Start Magazine 's in-depth analysis on the backstop ). In the interview with Repubblica, the number one of the ABI, the day after the vote in the Chamber, wanted to clarify : “The question is not whether or not to join the ESM. Even with the vote of the Chamber, Italy continues to remain in the old ESM with all the other countries". Patuelli believes that the debate on the ESM "has been loaded with excessive political meanings, and this is why we have never expressed our opinion on the topic, not even at our Annual Meeting".
NATIONAL CONCERTS TO SAVE THE BANKS
As regards banking crises, the number one at Palazzo Altieri recalled that "all banking crises from 2015 to today have been addressed with national resources. That of Montepaschi with state resources and the others with resources from competing banks. Fortunately, now no one fears banking crises anymore, but in the most difficult moments, and during the old ESM, we did it ourselves. We even saved Popolare di Bari, which then went to the state." On the ratification of the Stability Pact by Palazzo Chigi, Patuelli clarifies: "The Stability Pact was a European agreement from thirty years ago, it was part of the Maastricht project, making the adoption of the euro possible which had many positive repercussions , keeping rates and inflation low. The Stability Pact was then suspended with the start of the pandemic: the revision work that has been done in this two-year period is important work, the mechanism that emerged from it is more oiled, less rudimentary than the old agreement. It takes into account everything that has happened in these thirty years, including the birth of the Banking Union, 9 years ago. It is a mature compromise, which does not slow down development. And in any case we couldn't think of making the public debt grow indefinitely."
PATUELLI'S INTERVENTION ON SOLE 24 ORE
Today Patuelli returned to the ESM theme, underlining among other things that "it is not the first in the history of the European Union that Italy has failed to ratify the ESM in Parliament, the European Stability Mechanism established to provide loans to Euro area countries in financial difficulty: the changes concern the expansion of the functions of the ESM also to the strengthening of the European Banking Crisis Resolution Fund, financed by the banks, which has not been used so far". “Now we need to look ahead, beyond the controversies, to resolve, as Monnet warned, the ongoing European crisis”, is the hope of the president of the ABI: “As regards the further growth of the Banking Union, it is necessary to realistically take act of the experience of this decade and proceed in the possible ways, starting with the creation of Consolidated European Laws (which do not cost) first of all on banking law, to overcome the regulatory differences between the laws of the various States that belong to the Banking Union. This is essential for the growth of the Banking Union and to simplify the activities and growth of the banks that already operate (with many complexities) in the various European countries. After the Consolidated European Law on Banking Law, others are needed in the financial and criminal matters of the economy and also the more complex and ambitious one, on tax law, to equalize the tax burden first and foremost in the Euro area"
REFLECTION ON THE MES
“Once the phase of political controversy has passed, an innovative and non-preconceived reflection on the ESM itself will also be useful, which in any case remains in force in its original formulation, first of all to make it less technocratic and more democratic, also on the example of what happens for the ECB in relation to of the European Parliament", added Patuelli, and then concluded as follows: "In short, Europe must emerge from the "ESM crisis" with a renewed commitment to consolidate peace and collaboration of peoples and states in the institutions of a Union European Union which must always be committed to growth in well-being and civil, economic, social and environmental liberties".
PADOAN'S POSITION
The president of the Unicredit group differs from the positions of the association that brings together Italian banks, in the wake of what he also stated in the past: "In Italy in particular, the ESM is almost always spoken of in an instrumental way, outside of financial logic", said today Piercarlo Padoan, former PD Minister for Economy now president of the banking group led by the CEO, Andrea Orcel.
“There are some contrary elements, but in the end the Pact, despite all the changes that have been made compared to the text proposed by the Commission in the spring, is an improvement”, explained the economist Padoan in an interview with La Repubblica , commenting on the new Stability Pact. “Above all for a fundamental reason, beyond the individual measures: the collaborative spirit of Europe that led to NextGenEU has been saved, indeed it is valorised,” he added. With this new Pact “intelligent flexibility has been introduced. Some residues of rigidity remain, but the basic objective has been strengthened, and that is growth: Europe is there – continued the former Minister of Economy from the Democratic Party -. Markets are the third actor, together with governments and the Commission. If the last two are able to proceed with decision and strength, the markets will not be able to oppose them. It is a general call of responsibility." As regards the debate on the ESM, however, "it has been going on practically since it was born, and has always been exposed to ideological forcing, misrepresentations and speculation – explained Padoan -. All watered down by purely political issues and increasingly distant from economic logic. In Italy in particular, the ESM is almost always spoken of in an instrumental way, outside of financial logic." For Italian banks, 2023 was a golden year. “It's true, it was an excellent year, despite difficult conditions. We have finally overcome the problem of NPLs, there are the conditions for this momentum to continue: we must thank the increased efficiency, the availability of human resources, the technological effort – he concludes looking to 2024 -. As for us, as Unicredit we are ready to relaunch on new challenges, from digital currency to environmental investments, and we are in the best conditions to do so".
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/banche-mes/ on Wed, 27 Dec 2023 08:59:42 +0000.