Germany Just Blew Up Italy's Bank Bailout Plan

Tyler Durden's picture

"You never let a serious crisis go to waste. And what I mean by that it's an opportunity to do things you think you could not do before."

Rahm Emanuel prophetic words were quickly put to use by Italy on Monday morning, which barely waited one full day before using Brexit as the scapegoat excuse to warn that a €40 billion bailout of Italian banks is coming. 

As a reminder, on Monday morning the local media reported that Renzi's
government was pursuing a six-month waiver of EU state-aid rules,
allowing it to shore up banks without forcing investors to share losses. Two days ago, when we first reported of Italy's proposed bank rescue plan, we said that the chairman of Lower House’s Finance Commission, Maurizio Bernardo, confirmed that the government is studying options to support the banking sector, including a capital injection, and said a law decree “with measures going in that direction” could be approved by the end of this week. 

We pointed out that how such an intervention would be implemented was unclear; it was is also unclear how such a direct state recapitalization of Italian banks using public funds would be permitted by current EU and ECB regulations, which prohibit state bailouts of insolvent banks, although Europe has a long and illustrious history of finding massive loopholes to that particular prohibition. "Last but not least it is unclear how existing stakeholders, shareholders, bondholders and uninsured depositors, would be impaired under such a bailout."

Well, they wouldn't, despite Europe's recent implementation of bail-in rules. That was the whole point.

However, while Italy was hoping it would get a "pass" on using public funding, mostly Eurozone generated and thus courtesy of Germany, this appears to have hit a dead end moments ago, when Bloomberg reported that Germany opposes any attempt to shield private bank investors from losses if Italy pushes ahead with plans to recapitalize lenders. Chancellor Angela Merkel’s government says that European Union rules on handling struggling banks should apply in any rescue effort, including forcing losses on shareholders and some creditors before public money can be injected, the person said, declining to be identified because the deliberations are private.

And just like that Renzi's entire recapitalization plan has gone up in smoke, because if there is one person in Europe who can veto an Italian bailout, it's Merkel, which is precisely what she has done.

As Bloomberg adds, any waiver of the rules would be complicated, as Germany insists that the EU’s Bank Recovery and Resolution Directive be applied. That will mean Italy must first avoid triggering a wind-down procedure. The assumption in BRRD is that the need for “extraordinary public financial support” for a bank indicates that a bank is “failing or is likely to fail, and therefore triggers the need for resolution,” according to the European Banking Authority.

Also according to the source, Germany isn’t pushing for banks to be wound down, according to the person. The government does, however, want to ensure that private investors are tapped before any public money is put into the banks. EU state-aid rules normally require shareholders and junior creditors to share losses.

That, as we noted on Monday, is a dead end: currently, it is practically impossible for Italian banks to raise capital. "They are caught in a pincer as the ECB simultaneously demands compliance with tougher capital adequacy buffers, in some case demanding fresh infusions of capital three or four times.  The banking squeeze has become politically explosive in Italy after thousands of small depositors were wiped out at four regional banks late last year. They were classified as junior bondholders, even though most of them were just ordinary savers who did not realize what was being done with their money."

But worst of all for Renzi, Merkel's government in Berlin rejects the argument that the U.K. vote to leave the EU constitutes an “exceptional circumstance” which, under EU basic law, can allow a national government to grant aid to a company outside of the state-aid rules. 

Which simply means that Europe will need a bigger crisis, something which can be easily arranged, because recall as we concluded last time that the biggest winner from an Italian bank bailout would be none other than the ECB's Mario Draghi under whose tenure as governor at the Bank of Italy from 2005 until 2011 is when Italy's banks loaded up on all those €360 billion in bad and non-performing loans which Italy is now desperate to eliminate or at least offset. The last thing Draghi would want is for his legacy to one remember for the collapse of the Eurozone's most insolvent banking system.

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Manthong's picture

Well, it’s not the first time the Krauts blew something up in Italy.

NoDebt's picture

Wouldn't it be easier to simply mark all the NPLs up to a better number and ignore the shit out of the problem?  Works here in the US.


Harlequin001's picture

Do we give a shit anymore?


McCormick No. 9's picture

BUt... what happens when it's DB'S turn to be bailed out?

RaceToTheBottom's picture

Only Dousch Bank gets the bailouts, if they avoided getting arrested.

Of course, US firms were not the illegal ones, its just those damn foreigners....

Bumpo's picture

Time for Italy to say, Okay. We no longer denominate in Euros. All Euro debt is now null and void. Today we print the Lira. 

Gather those rosebuds's picture

They've got Cyprus's universal bail-in playbook and they're running it step by step.

jcaz's picture

Achtung, Mario-  you're gonna get rolled- again.....

JamesBond's picture

Churchill would be speechless





BetaGap's picture

It's summer... time for a haircut in italy.

Yukon Cornholius's picture

I conclude million dollar deals for breakfast. I'm not afraid of this eurotrash.

KnuckleDragger-X's picture

Bailing DB is different because only Germany is allowed to break the rules.......

Peribanu's picture

It's OK, Greece will bail out Douche Bank again. They've been doing it all along.

Galahad Threepwood's picture

The timing is interesting

ZH thinks they are taking advantage of a crisis

It could be that the announcement was delayed so as not to "influence" the vote

old naughty's picture

but that would mean it's applicable to UK banks too, no?

So she's "helping" (to deter) the vote, and DC shouldn't say brexit was her fault then?


Mr. Bones's picture

Dear Italians,

Get your currency the fuck out of those banks, you won't always get a warning of this caliber.

Rip van Wrinkle's picture

Problem there. They lost.


It's funny though. Nothing on the BBC or Sky here in the UK about any Italian bank disaster. Just racism, phoney accounts of racist attacks, phony attacks in Parliament on Farage and 52% of the population being told they're as thick as two short planks.


That'll win over the Brexiteers.

Stuntgirl's picture

Is there anything on the BBC or SKY over there in the UK about the change in coverage of FSCS?

Because I just this minute got notified (in continental europe) from Barclays UK that coverage went from 85000GBP to 75000GBP dated 22 June.

I'm surprised Zero Hedge s not all over that news.

Chris Dakota's picture
Chris Dakota (not verified) Harlequin001 Jun 29, 2016 9:16 AM

I don't care about Commie Europe at all anymore.

Won't go there, don't want them coming here.

Harlequin001's picture

I will, and when I hand over my passport I'm going to apologise for the banana that's stuck to it and pretend to be deaf.

wildbad's picture

mamma mia,

as someone who pays taxws into mr. merkel's system, i think that the bail in laws are an improvement in the way the cookies will crumble next time.


she has already cost me 2 years of retirement and thousands of €uros.  despite having been very generous to the bnaksters in the past with my money the times they are a changin and germans have a long memory when it comes to their money and like to see things "fixed".


don't get me wrong, there will be plenty of losers when DB drags the whole world down with it but mr. merkel can't be seen as the one who pulled the plug.

Manthong's picture

I hope you have been swapping Draghi-dough for some stuff that will store value beyond fiat.

But wouldn’t you like to see the DM back?

Better yet the Goldmark?

FatTony7915726's picture

Grazie Frau Merkel. Va fanculo!

actionjacksonbrownie's picture

That's 1 for you and 19 for me.

SillySalesmanQuestion's picture

Doing whatever it DEstablize.

CNONC's picture

Depositers classified as junior bondholders?  I wonder how many people elsewhere think they have bought CD's and have in fact bought bonds?

NoDebt's picture

My guess:  all of them.

Ghordius's picture

well, if you ask continental europeans what a CD (Certificate of Deposit) is, you draw blank stares

for us, if you start to explain it, it sounds like a kind of ETF, or stock, I'd say. it's "dollar equivalents" or something, isn't it?

Winston Churchill's picture

I would never try to explain anything to my German cousins.
Dogmatism is a terrible waste.
Care for a little wager Ghordo?
I bet the EU dissolves within 18months.

crazzziecanuck's picture

It will look very different than it is now, but dissolved is rather unlikely.


It's going to shortly become a game of chicken between Germany and just about everyone else.  Who will blink first?  Will they come together instead of fucking over everyone else to ensure that Germany can export BMWs to people who no longer have any money to do so?


We shall see.

Winston Churchill's picture

It will collapse just like the old USSR did,and for almost the same reasons.Just as quickly as well.18 months is optimistic IMO.Hopefully averting WWIII.
Enjoy the show.

TheVillageIdiot's picture

I am struggling to figure out how 18 months is possible. Outside limit would be 12 months,

Manthong's picture

Re: CD’s

It’s a bank deposit note with a higher interest rate because the depositor agrees to keep the amount of the deposit  at the bank for a specific period of time.

But everything is squirrelly now and CD’s don’t pay squat so they are not all that popular anymore.

Back in the day before the banksters destroyed the monetary system and interest regime you could make a couple points more on CD’s and ladder them with different durations like corporate or government bonds.

And no sane or knowledgeable person trusts the banks anymore anyways.

ali-ali-al-qomfri's picture

i can remember 22% CD's, 70's, 80's ish??

AbbeBrel's picture

In Spain the sheeple had a royal shearing from "Preferentes":

And looking at Italy:

"Less than one in three Italians is aware of the existence of deposit insurance. [...] Particularly worrying in this respect is the fact that four out of ten Italians believe that if their bank collapsed their money would be lost."

So given that Italians are pretty unsophisticated, according to this paper, then probably even fewer are aware of "Certificati di deposito". Unless of course, like in Spain, the Banksters are pushing them actively to the Sheeple to buy. Wikipedia says that the fine print is different in Italy, compared to the US - where they are said to be covered under FICA insurance (YMMV of course - you should read ALL the fine print - channel your inner "Michael Burry" (Big Short).

"Rischio Emittente: ossia il rischio che alla scadenza non venga pagato per insolvenza."

Bam_Man's picture

Bonds that pay little or no interest, but expose you to massive capital loss.

The banksters themselves are amazed that there are still ANY depositors out there.

RadioFlyer's picture
RadioFlyer (not verified) Jun 29, 2016 7:01 AM

What will be the Italian False Flag?  Hit on the Poop?  I mean antichrist, I mean Pope?  Olive oil factory hit?  Mozzerella Massacre? 

Manthong's picture

They won’t hit the Poop… he’s one of them.

Jesuits are to the Church what the CIA is to the US government.

Herd Redirection Committee's picture

The first Jesuit, Ignatius Loyola was... A cryptoJew.  Thats all I have to say on the matter.

WTFUD's picture

No it's much more serious than that - Parma Hemp!

To Hell In A Handbasket's picture

Lost them fold. Fuck the bail outs. It's the most sensible thing she has done in the last 2 fucking years.

Grimaldus's picture

Whaaaat? Italy to support the banking sector? Unf**king believable.

The banking sector belongs in jail.







undercover brother's picture

The idea that any bank or business would expect to be bailed out by the public from losses resulting from their own mismanagement, and not have it effect the shareholders and bondholders of said bank or business is exactly the mindset that created this global mess in the first place.   Having said that, if you drill down the rabbit hole far enough, you'll likely find some sort of government mandate behind these poor investment decisions.  


To Hell In A Handbasket's picture

"government mandate behind these poor investment decisions" 

Really? Do me a favour and stay off the weed. There is no government mandate that drove the greedy bastards from Lehmans et al, to participate in casino banking. The German government never advised Deutscehbank to have $75 Trillion in derivatives on their balance sheet.  

It is banks that lobby and tell the governments what laws they want, not the other way around. You are simply bashing the government for the sake of bashing it. Government is to blame for a lot of things and are useless at most of them, but telling the banks what to do is not one of them and given the daily stories on this website, the notion the banks takes edicts from the state is a fucking joke. The banks rule the roost. Period! I'm shocked at the amount of up-votes you got for blatant inaccuracies.

new game's picture

example; state law bail pensions for state retirement mismanagement. and who is holding the bag? bondholders of the ilk of banksters- that  do what? influence gov. hello, it is called fascism...

add my upvote...