"We Won't Be Lectured" - Italy's Renzi To Defy Brussels Over Banking Bailout

Tyler Durden's picture

With all eyes distratcted by the post-Brexit euphoria, the last week has seen a far more existential crisis accelerating in Europe. Italy's banking system is in tatters (from a EUR40bn bailout 6 days ago, to EUR150 emergency support 3 days ago, to a bank bailout and chatter of further support from pension funds Friday) but, in what seems like a clear admission that things are really bad, The FT reports that Italian prime minister Matteo Renzi is prepared to defy the EU and unilaterally pump billions of euros into its troubled banking system if it comes under severe systemic distress, a last-resort move that would smash through the bloc’s nascent regime for handling ailing banks.

As we noted previously, Brexit will be just the scapegoat used by Renzi and Italy to circumvent any specific eurozone prohibitions. And if it fails, all Renzi has to do is hint at a referendum of his own. Then watch as Merkel scrambles to allow Italy to do whatever it wants, just to avoid the humiliation of a potential "Italeave."

And sure enough, as The FT reports, Matteo Renzi, the Italian prime minister, is determined to intervene with public funds if necessary despite warnings from Brussels and Berlin over the need to respect rules that make creditors rather than taxpayers fund bank rescues, according to several officials and bankers familiar with their plans.

The threat has raised alarm among Europe’s regulators, who fear such a brazen intervention would devastate the credibility of the union’s newly implemented banking rule book during its first real test. In the race to find workable solutions, Margrethe Vestager, the EU’s competition chief, has laid out options for Rome to address its banking problems without breaking the bail-in principles of Europe’s banking union.  


Italy is the eurozone’s biggest vulnerability following the shock outcome of the UK vote to leave the EU, with bank stocks plunging by a third. Concerns are building before the outcome of bank stress test results due this month and a constitutional referendum in Italy in early October, on which Mr Renzi has wagered his job. Citi has described the referendum as “probably the single biggest risk on the European political landscape this year outside the UK”.


After several of its ideas on intervention were rebuffed, Rome is considering whether to act alone. “We are willing to do whatever is necessary [to defend the banks], and do not rule out acting unilaterally, although that would only be as a last resort,” said one person familiar with the government’s thinking. European officials fear any Italian intervention would carry high risks, opening a battle over illegal state support that would put off private investors.


Angela Merkel, German chancellor , last week rebuffed Italy’s request for a suspension of state aid and bail-in rules in order to recapitalise its banks. Benoit Coeure, a senior European Central Bank official, has said any suspension of bail-in rules would spell the end of the banking union “as we know it”.


Mr Renzi has bristled at suggestions he is ignoring rules, saying he will not be “lectured by the school teacher”.




Italy’s business lobby, Confindustria, on Friday warned of “political chaos” should Mr Renzi lose October’s referendum. Under such a scenario, Italy would re-enter recession, spreads on Italian debt would widen and there would be capital flight from Italy, Confindustria argued. Italian gross domestic product would fall 0.7 per cent in 2017 and drop a further 1.2 per cent in 2018, it added.

So to summarize, The EU's "bail-in" banking system failure regime has been entirely dismissed (as Italy proves that when it gets serious, it's about national rescue, not 'union' rules). However, as we warned previously, the real threat is if the local population wakes up to the risk of holding their savings in a financial system that is now teetering on the edge, something Renzi himself admitted when he said that he "hoped to use a liquidity backstop to contain investor panic, which could result in a run on deposits and affect banks’ liquidity." Because even if it buys up every bond, loan and stock in the world, the ECB will not be able to fix the public's loss of trust in fractional reserve banking.

Finally, if you haven't already had enough enough of European bullshit, here is the massive divergence between Italy's banking system (red) and its sovereign bonds (green) which are remarkably - due to Mario Draghi's plans - as interconnected as they have ever been in history as banks bought bonds to front-run ECB bazookas...

What happens next?

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peddling-fiction's picture

Summer of chaos is proceeding as planned...

Any EU leader can go off the reservation and defy TPTB /sarc


Latina Lover's picture

Fuck the EU.   The only phrase out of Victoria Nudelman's  (oops Nuland) mouth worth repeating.

ZH Snob's picture

he's begging for the woodshed and switch.

God bless him.

but it is an odd thing when a banking wonk chooses to defy his ultimate banking masters.  it's as if central control has been breached and the controllers have vanished, like the illusory boogeymen they really are.

wildbad's picture

yeah..god bless him.  as Tip Oniell said, "all politics is local".


He knows that there ain't no place to hide in italy if he lets the banks crash.  Fuck Junker..Fuck the EU..I'm afraid of the Corleones

45North1's picture

The need for a "last resort" solution can come very quickly now a days.....

Bumpo's picture

The European Union acts All-Powerful, but its becoming clear that the man behind the curtain is an empty suit.

booboo's picture

"stand back or the taxpayer gets it" (holding up a bloated corpse with a gun to it's head)

Ghordius's picture

"The European Union acts All-Powerful..."

what rubbish. compared to what? the US? China? and why is Juncker a "man behind the curtain"?

carbonmutant's picture
A Funny Thing Happened on the Way to the Forum
Dead Canary's picture

Tax all foreigners living abroad. Hey, it worked for Ceasar.

Whiteblob's picture

untill he got stabbed up in the senate

BurningFuld's picture

The USA says Fuck the EU, then Britain says Fuck the EU, now Italy says Fuck the EU. I'm beginning to see a pattern.

Dead Canary's picture

Umm... No, I don't see it. Can you list anymore countries saying FU Europe?

Rage Against Your Face's picture

The Greek people did (not that it did them any good). The Dutch rejected the Ukraine referendum. 

BurningFuld's picture

Patience my little dead canary, patience.

Farqued Up's picture

Sheeeit! Germany will be back on the D-Mark by the end of Trumps first year in office, or January, 2018 whichever is sooner.

euforselectfew's picture

Don't believe what you hear coming out of Italy. Renzi's got a referendum on the constitution coming up. And he's afraid that Italians will wake up to the fact that he wasn't democratically elected. Which won't happen. 

euforselectfew's picture

Don't believe what you hear coming out of Italy. Renzi's got a referendum on the constitution coming up. And he's afraid that Italians will wake up to the fact that he wasn't democratically elected. Which won't happen. 

gregga777's picture

Capitalism in the West, including the United States of America, has been dead for many, many decades if not a century with money changer directed fascism is the norm. President Franklin Delano Roosevelt plunged a dagger into the heart of the American Constitution and subsequent Presidents accelerated its destruction.

Matteo S.'s picture

You are starting far too late. What about Lincoln and his civil war not triggered for abolition of slavery but for northern imperialism ?

ANestIOS's picture

"post-Brexit euphoria" ahem, dismay rather, since - surely - they can't kick the can any further (or can they?)

btw, maybe Noonan's phrase was fuck the EU banking union

Paracelsus's picture

No sympathy whatsoever.Where was the due diligence when the Italian Banks were making huge loans to Spain and Portugal?

They screwed the pooch and now (like Germany) they want to dip into the Pension funds. Nobody uses the term "Moral Hazard" anymore....

The Spanish construction boom was a huge bubble and everyone knew it.Not to mention corruption in Spanish gov't.

None of the bailout money sent to Greece ever got to the people on the street.It was shifted from one swiss account to another swiss account...

I hear a ticking time bomb in those Deutsche Bank derivatives pile.Wanna bet those ISDA chaps are wearing brown pants these days? 


wobblie's picture

The little people shouldn't turn on each other that what Brussels and the corporate order want.

The Greeks weren't "lazy" either.

The EU was made this way so that smaller countries would buy exports from Germany, among others, and not produce themselves. And when they went bust, were "loaned" money to pay back those same bankers and bureacrats.

I M DeMan's picture

Those Eye-talians sometimes have a bad temper. Give them some spaghetti and Chianti and they'll gradually calm down.

wobblie's picture

"...and do not rule out acting unilaterally...."

Translation: "...and do not rule out acting autonomously like an independent country...."


SmittyinLA's picture

Merkel will fake outrage like she faked orgasms to be a politician

The primary beneficiary of Italy spending will be DB

jfb's picture

Cyprus was a cobaye. They are too greedy to realize that they will saw the branch on which they are sat. Many of the accounts with more than 100K are small enterprises bank accounts. Cyprus was an isolated case where the pretet of money laundering was used, now they will "detach" ordinary people and small enterprises from electronic money much faster than any hyperinflation crisis would have

Ms No's picture

Haven't heard much from that corpse Soros recently.  At this rate they may have to put him back on third string and pull out another goblin mouth piece. 

JailBanksters's picture

But didn't Super Mario say he was going to flood europe with free money, well for his banker buddies.

Does it really matter who pushes the Button.

The sooner you push it, the sooner it's value is going to zero.

assistedliving's picture

The Mrs has booked an Italian vacation in two months....Renzi, dont fuck this up now.  


buzzsaw99's picture

the irony is that without draghi buying italian bonds renzi wouldn't be able to bail out italian bank bond holders. the irony, it burns.

Rubicon727's picture

"......Italy would re-enter a recession." Who the hell wrote this article? Italy is not in a recession, but a certifiable "DEPRESSION."

Thousands of youthful Italians are jumping ship - leaving their country for Asia and part of Latin America.The huge elderly population still thinks it's 1960 and continue to vote for the super wealthy Renzi simply because he's part of the "Democratic" Party of the 50s/60s who did a volte-face as Italy started moving into the EU.


Redart's picture

Start buying Vix slowly during the dips, its already down 12% from fair value

ParticularlyStupidHumanoid's picture

Such arrogance. They're gearing up another Gladio, I'll betcha. It's really hard to have compassion on some of these people. Take the French. They're so rude and arrogant that it's pretty hard to feel sorry for them.

Matteo S.'s picture

Everybody is arrogant. French no more than americans, british, germans, chinese, mexicans, israelis, ... etc

ParticularlyStupidHumanoid's picture

The rates vary. In Europe you cannot find courteous people. It's like saying that "everything contains air." There may be a small amount of air in a bag of salt, but you can't breath it.

"no more than?" Absurd. You see, this is a big lie. You say they are the same, I say they are MASSIVELY DIFFERENT, and some societies are not worthy of preservation: The society of France being an obvious example, Greek, Spain, Portugal, and of course the whole of the Levant.

Whiteblob's picture

and the american are loud and obnoxious

Palomadelapaz's picture

Renzi's political posturing is a farce. Just like Hillary and Trump and the US "election". The problem isnt the EU, or even the government enabled immigration and terrorism. The problem is the result of inbred EU Oligarchs pretending to play God under the guise of freedom and democracy. Everything is a farce these days, but it is the same as it ever was. I think Europeans are painfully aware that their democracy is a sham. The Russian Mafia State has infiltrated most european institutions and the only nation who called out the Kremlin was Spain. China is funding Clinton, and Russia is campaigning for Trump. The same puppet masters control those nations, and they have their ponies in both races. We are being conned again. We are all victims of treasonous sock puppets beholden to something other than the people. Pray for the world.

euforselectfew's picture

upvoted,  but Italians don't care. They are Sheeple and Germans and Deutschbank are banking ( excuse the unintentional pun) on that.

euforselectfew's picture

I live in Italy and my bank IntesaSanPaolo has sent me an email encouraging me to invest in olive oil. Bizarre. Renzi is just being two-faced to quiet the 5 star movement (they are also grandstanding). And most importantly, Italians don't care anyways that ever since the EU technocrats got rid of Berlusconi they havent democratically elected a prime minister since. The fairweather friend Italians from the right, left and middle will stick firmly with the Germans.

oncemore's picture

erlusconi has been removed in a puch 5 years ago. Since then 3 unelected prime ministers have been seen in Italy. Renzi is the last one. If he goes according the script, fine for him, if not, he is going to be replaced.