“One theme which could dictate near term direction for markets and which, arguably, Brexit has reignited and brought back to the forefront, is the ailing and fragile state of the Italian banking sector,” Deutsche Bank’s Jim Reid commented in his Early Morning Reid note back in July. Italy’s financial sector is plagued by an enormous surfeit of bad loans so great that the government was, in April, forced into rallying bank executives, insurers and investors to put €5 billion (£4.2 billion, $5.57 billion) behind a rescue fund for its weakest banks.
EU rules are rigid and state that bond holders should bail out the banks, as in most countries the holders of the bonds are sophisticated people who have made returns in excess of the safe rate that represents the risk. But if you look at Italy it represents a case where, for a variety of historical reasons, among the bondholders there appear to be a lot of ordinary individuals. If that is the case, when you make them bear the cost you are really going after depositors, this happened in Cyprus and, to a certain extent, is what happened in Spain with CAM Bank and Bankia.
It would appear that the EU rule that you ought to let the bondholders bear the cost looks like it may not be the right rule for Italy. European rigidity may have very high costs both for democracy and for Italy, and for – if there’s a referendum in Italy – the future of the eurozone.
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When an expat moves from their homeland to a new destination, either for work or education, they become a potentially valuable addition to that country. Such expats may go on to become an integral part of the country, which is why the rights of EU expats living in Britain has been one of the hot topics during Brexit negotiations.
Following on from last week’s