Will the ESM reform help save German banks too?
Who and how in the banks will benefit from the ESM reform? Words, comments and analysis by Tria, Brunetta, Galli, Liturri and Oldani on German banks and beyond
Is it true that with the ESM reform the backstop needed by German banks is introduced and anticipated? The former Minister of the Economy, Giovanni Tria, replies to the Foglio : “Maybe, but if the German banks go into crisis then ours will also fail. We must oppose what harms us, not what benefits others. Otherwise then there will be those who oppose the Recovery based on the same logic: because it benefits us ”.
THE WAITING FOR GERMANY FOR THE REFORM OF THE ESM AND THE CASE OF GERMAN BANKS
Germany is expecting Italy's yes to the ESM reform precisely for German banking issues, an M5s minister revealed yesterday to the newspaper La Stampa : "Berlin would be most interested in collecting one of the chapters of the reform, the so-called backstop, the network of public protection for banks, an essential parachute for the stressed German credit system ”.
THE TECHNICALITY OF THE ESM REFORM
The reform will also contain the possibility, brought forward to 2022, that the Resolution Fund (SFR) for banking crises can ask the Mes for a parachute loan up to a maximum of 68 billion. This is in the event that the SFR itself has exhausted its funds (approximately 55 billion by the end of 2023).
BRUNETTA'S YES TO THE MES REFORM
"The advance of the 'common backstop' mechanism as a strengthening of the Single Bank Resolution Fund of the Eurozone, in the form of a Mes credit line, and the advance of the 'risk assessment', both to 2022, included in the long-awaited and discussed reform of the Mes Treaty, are undoubtedly excellent news ", underlined the economist Renato Brunetta, deputy of Forza Italia:" The tool of the 'backstop' serves precisely to avoid what had happened between 2010 and 2012, when the European inability to manage the crisis of a (small) sovereign state, Greece, risked derailing the second most important currency in the world through the contagion of the banking system, with easily imaginable consequences ”.
BRUNETTA'S STUDIO
The advance of the instrument – according to the former Minister of Forza Italia who edited a dossier pro reform Mes as head of the Forza Italia department on economic policy that is causing the Azzurri to discuss, instead attesting to no after the indication of Silvio Berlusconi – "is extremely important for a banking system grappling with what will be a difficult exit from the pandemic crisis, a crisis that is filling the balance sheets of Eurozone banks with bad loans (NPLs) again, at the exact moment in which they are they were laboriously reducing ”, according to Brunetta:“ NPL credits which, according to the latest estimates of the ECB, would amount to the monstrous figure of 1,500 billion euros. A quantity of bad loans, widely understood, which represents a good approximation of the size of the crisis suffered by European companies, which could soon lead to new systemic failures in credit institutions. From this point of view, Italy is the State of the Eurozone, together with Greece and Portugal, to have the highest percentage of Npls, therefore among the countries most exposed to negative shocks, and therefore among those that could earn the most. by the implicit stability guaranteed by the early 'backstop' mechanism ".
THE SCENARIO OF LITURERS ON MES AND GERMAN BANKS
The analyst Giuseppe Liturri today in the newspaper La Verità foreshadowed this scenario: "A banking crisis should be of such magnitude as to require, in order: bail-in, therefore sacrifice of shareholders, bondholders and depositors, up to 8% of the liabilities ; subsequent intervention by the SRF with the use of all its 55 billion; final support from the Mes in favor of the SRF with a loan of a further 68 billion. The probability that such an Armageddon will affect a French or German bank is very high, if only for their size and the level of risk of some items of their assets. If this happens, those tens of billions will still be wiped out in an instant and, as always, the states will have to intervene. Other than a contribution to the financial stability of the Union ”.
THE ANALYSIS OF THE DAILY THE TRUTH
For Liturri, “only the MES gains from this reform, because without realizing it, a more useful tool is abrogated. According to the well-known law that if one thing is not needed then it is used for something else, this useless parachute loan replaces and repeals the pre-existing instrument of direct bank recapitalization (up to 60 billion). That yes concretely actionable and perhaps useful for some Italian banks, but “dangerous” for the ESM as it exposed it to a direct risk towards one or more banks. From tomorrow, the ESM will be in the least risky situation of being a creditor of the mutual fund of all banks (SRF) ”.
THE HEARING OF GALLI
One year ago Giampaolo Galli, economist, formerly at the Bank of Italy research office and former general manager of Confindustria, on positions which are anything but unfavorable to the Mes: "The ongoing reform decisively shifts the axis of economic power into eurozone from the European Commission to the Mes. Not surprisingly, in her speeches to the European Parliament, the new President of the Commission, Ursula Von der Leyen, basically avoided talking about the governance of the eurozone. In particular, he said nothing about the Commission's proposal to create a European Monetary Fund and a Eurozone Finance Minister with a budget capable of performing macroeconomic stabilization functions. Von der Leyen's silence is explained by the consideration that this set of issues had already been addressed and resolved by the Eurogroup and the Eurosummit of last June, in the sense of giving a secondary role to the Commission. In particular, the Mes is becoming what the Commission's initial intentions should have been the IMF ”.
THE REPORT OF THE STUDY OFFICE
That the Mes, thanks to the reform, can become an equal rank of the EU Commission in economic governance is a hypothesis – remarks today the long-time economic journalist Tino Oldani in Italia Oggi – also proposed by the Senate Studies Office: «The most important modification for the granting of support appears to be that for which the director general of the ESM should support the Commission and the ECB in the assessment of the request for support presented by a Member State. On the basis of these assessments, it would always be up to the Director General to draft a proposal for approval by the Board of Governors and to prepare a proposal for financial assistance, including the financial terms and conditions, and the choice of instruments, which must then be adopted by the Board of Governors ”, reads page 16 of the report by the Senate Studies Service.
WHO IS THE HEAD OF THE MONTH
At the head of the MES is Klaus Regling, German, general manager of the salvage state fund: “Regling is back on the crest of the wave immediately after the appointment of Christine Lagarde as head of the ECB. The Coronavirus pandemic was still to come, and the re-launch of the Regling hawk looked like a German revenge to end Draghi's accommodative monetary policy, and consequently put the most indebted countries in line, Italy in head. For this reason, Angela Merkel and Emmanuel Macron, with the Meseberg agreement, agreed on some changes in European economic governance. Among these, the reform of the Mes (demanded by Merkel), the launch of a European budget and a European Minister of Finance (requested by Macron) ”, recalled Oldani.
If the ESM reform goes through, Regling will become a peer of the ECB: “An interlocutor not inclined to accommodation with Italy. On 23 March, when at the beginning of the pandemic Italy promoted Eurobonds, Merkeldisse: «There is already the Mes». And Regling added: "Italy and Spain must get on their knees." A real kapo ”, Oldani cut short.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/la-riforma-del-mes-aiutera-a-salvare-le-banche-tedesche/ on Wed, 09 Dec 2020 12:07:15 +0000.