Why is Europe pressing Italy to ratify the reform of the Mes?
Is it about to blow up some big banks in the Eurozone? Or are there other reasons behind the EU pressure on Italy to proceed with the ratification of the reform of the Mes? Facts, hypotheses and analysis in the deepening of Giuseppe Liturri
Is it about to blow up some big banks in the Eurozone? Judging by the pressure exerted on Italy in recent days to proceed with the ratification of the reform of the Mes Treaty, it would seem so. If Christine Lagarde , president of the ECB, even bothered, then it means the situation is "serious but not serious" [cit.].
We would like to remind those who are now listening that the reform of the Mes, which the only Italian Parliament among the 20 countries of the eurozone persists in not ratifying, introduces the possibility of disbursing a loan of 68 billion in favor of the Single Resolution Fund ( SRF), if the latter had exhausted its resources to intervene in one or more bank failures.
Consequently, one must be clear here. Of the two, one: either the ratification of the Mes is useless or nothing and then the pressure on Italy is not understood, or it is useful for something, that is, to intervene urgently in a banking crisis.
There would also be a third possibility: that it serves another purpose, but then it is good that someone, first in Europe and then in Italy, has the courage to speak clearly and reveal the now hidden purpose.
If we were to accept the urgency expressed by the European institutions, then we should hypothesize that a banking collapse of such dimensions could be imminent as having to first require the bail-in of bondholders and depositors over 100 thousand euros up to 8% of the bank's liabilities. This sacrifice should not be sufficient to rebalance assets and liabilities to the point that the SRF should intervene, whose approximately 60 billion should not be enough to rescue the bank. At that point the loan from the ESM to the SRF would be needed to step in as the resolution authority and keep the bank going.
But if there is an urgency for this desperate lifeline, the conclusions of last Friday's Eurogroup seem untrue. Where at first there is self-satisfaction with the solidity of the European banking system even in the face of the banking crises that took place in the USA and Switzerland, but then there is a return to insisting on the ratification of the ESM with its "parachute" loan which is truly an instrument of last resort in the face to a tsunami.
This intervention is curiously placed on the same level as the missing pillars of the Banking Union, on which the Eurogroup and also the subsequent informal Ecofin Council intend to intervene. Let's talk about the infamous BRRD directive which manages the resolution of failing banks. The recent Commission proposal, on the one hand, aims to extend the resolution (bail-in included) also to medium-small banks that have been excluded up to now, thus nullifying the preventive intervention of interbank protection funds. In short, resolution for everyone, small and large, even if national schemes could work better.
Dead silence on the fact that there are 140 billion in deposit protection funds in the euro area and that perhaps it would be more useful to finally put in place a system of mutual guarantees for these funds (the famous Edis that were never launched). In the US, this guarantee exists and it took the FDIC a moment to secure all bank deposits of any amount. We in Europe don't have walls, we lack a roof but we are worrying about the fire prevention system.
So, are we safe or should we be concerned? Or do they want something else from Brussels?
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/perche-leuropa-preme-sullitalia-per-ratificare-la-riforma-del-mes/ on Thu, 04 May 2023 07:27:55 +0000.