IMF Warns Of "Global Contagion" From Italy's Bank Crisis; Forecasts Two-Decade Long Recession

Tyler Durden's picture

Piling on to Italy's growing mountain of worries, this evening the IMF itself warned that Europe's third largest economy would grow by less than 1% this year and only marginally faster in 2017, slashing its previous forecasts of 1.1% and 1.25% growth for the next two years, mostly as a result of the most convenient scapegoat available in Europe at the moment: Brexit (which has become to Europe as "cold weather" has been to the US for the past two years).

Christine Lagarde's organization said Italy was “recovering gradually from a deep and protracted recession”, but said the healing process was likely to be “prolonged and subject to risks”. It used its article IV consultation – an annual economic and financial health check – to stress that Italy was vulnerable to a cocktail of threats that could have knock-on effects for the rest of Europe and the world.

The IMF dour outlook may be overly generous. While economists have been racing to downgrade Italy's outlook since the British referendum, Italy's own employers' lobby Confindustria now sees growth of just 0.8% this year dropping further to 0.6% in 2017.  Italy, long one of Europe's most sluggish economies, will struggle to close the gap with its peers even if recent reforms are fully implemented, the IMF report said.

The punchline: only by around 2025 will Italian output return to its 2008 peak before the global financial crisis, according to the IMF. In the same period, growth among Italy's euro zone partners is expected to rise by 20–25% above their pre-crisis levels. In other words, Italy is now in the middle of what will end up being a two-decade recession.

"The authorities thus face a monumental challenge. The recovery needs to be strengthened to reduce high unemployment faster and buffers need to be built, including by repairing strained bank balance sheets and decisively lowering the very high public debt," the report said.

“Downside risks arise from delays in addressing bank asset quality, intensified global financial market volatility – including from Brexit, the global trade slowdown weighing on exports, and the refugee influx and security threats that could further complicate policymaking,” said the IMF. “If downside risks were to materialise, regional and global spillovers could be significant, given Italy’s systemic weight.”

And speaking of Italy's weakest links, the banks, the IMF said that "risks are tilted to the downside," listing a raft of issues including the poor asset quality of Italy's banks, financial market volatility and the impact of a global trade slowdown on exports.

"If downside risks were to materialize, regional and global spillovers could be significant given Italy's systemic weight," it said.

In an assessment that will hardly help Italian bank stocks, the IMF said that the country's banks, which are saddled with some 360 billion euros of bad loans and whose share prices have fallen by more than 50 percent this year, are a particular threat to the economic outlook, the IMF said. "Unless asset quality and profitability problems are addressed in a timely manner, lingering problems of weaker banks can eventually weigh on the rest of the system," it warned.

Finally, in keeping with the tradition of having political involvement, Lagarde sided with the side of Renzi and against Merkel and Dijsselbloem, both of whom have denied Italy's repeated pleas for a bailout, saying that If EU-wide stress tests show that financial stability is at risk, there is scope for Italy to use public money to recapitalize its banks, the head of the IMF's mission to Italy, Rishi Goyal, said in a conference call.

To what extent this could be done without triggering losses to investors under newly adopted "bail-in" rules would depend on negotiations between Italy and the EU, Goyal said.

It was also unclear just who would determine what conditions would define a financial system under stress.

Italy's public debt, the highest in the euro zone after Greece's, will not fall this year as targeted by the government of Prime Minister Matteo Renzi, the IMF said. In a forecast made before the UK referendum, the IMF said Italy's debt would edge up to a new all-time peak of 132.9 percent of gross domestic product from 132.7 percent last year.

Italy’s finance minister, Pier Carlo Padoan, vows there is not banking crisis.

Still, all of this may be moot if various unconfirmed rumors of Italian cashless ATMs end up being true. What is most troubling, however, if past is prologue is the desperate plea by Italy's finance minister, Pier Carlo Padoan, to restore some confidence in Italy's banks, to wit:


Traditionally, it is such "political" (and futile) statements such as that one - especially when everyone knows they are false - which do precisely the opposite of their intended goal, and emerge just days before the worst case scenario becomes a reality.

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mofio's picture

Karma is a biyatch.

peddling-fiction's picture

Yeah, lets blame the Eye-talians for the crisis. /s

Atomizer's picture

That's very funny. So many people use the eye pronounation. I used to have a field day when younger. Had many WOP friends growing up. I has called a WASP. We didn't care about it, we were just good friends.

We fucked with people as kids, asking them what there favorite salad dressing was. Of course, eye-talian. What country is Rome located, It-aly. 

Thanks for the old fond memories. 


greenskeeper carl's picture

wouldn't a two decade long recession be, by definition, a REALLY long depression? And that guy is dreaming if he thinks Italy's stock market would hit its all time highs again by 2025. Just ask Abe and the gang how that shit really works. Its been that long since theyve hit an all tine record high, and they aren't even close, especially inflation adjusted. Until these fuckheads reach their apparent goal of hyperinflation nirvana, real(inflation adjusted, haha) highs are a pipe dream. Its never going to happen.

Shpedly's picture

Indeed. Dow 20K is in the bag.

Never One Roach's picture

Stawks record high....what recession?


[Pleeeze don't mention the other 95% suffering in fly-over ocuntry].

greenskeeper carl's picture

It serves them right, if they had bought moar stawks, they wouldn't be in a recession, amiright?

bob_bichen's picture
bob_bichen (not verified) Jul 11, 2016 7:08 PM

A now, live, from the Italia Theater:


Grave's picture

2025 "growth"?
not according to 2025 forecast by

italy 2025 - population down by 36% (from 61m to 45m), gdp down by 43%, purchasing power down by 52%

khnum's picture

According to several sources including Armstrong economics the bank runs in Italy have started

Amun's picture

Tutto è terribile. Le persone stanno lottando per arrivare al bancomat. Essi dicendo le banche non si aprono domani.

blue51's picture

At least with the Monopoly game, there was only so much money in the box.

OverTheHedge's picture

According to the rules, and just like in real life:

"Only the player in question can use their money, money can only be lent via the Banker or by the player mortgaging an asset, money cannot be lent by another player. Each player receives two $500, two $100, two $50, six $20, five $10, five $5, and five $1. Each player should start the game with $1500. The Bank has 32 houses and 12 hotels, but never runs out of money."

GreatUncle's picture

Buy a game of monopoly ... get a free monopoly CTRL-P printer while stocks last.


Banksters pointing fingers at other banksters. When will the suicidings re-commence?

rlouis's picture

Are Italy's bankers insured at the same rate as JPM? 

Never One Roach's picture

When Italy starts running out of toilet paper, then I'll get worried. Until then, "It's contained."

greenskeeper carl's picture

If by "insured" you mean being backstopped by the printing pres of the ECB and the preverbial gun to the head of the millions of italian taxpayers and depositors who will have to pay for this shitshow, then yes, exactly like JPM

PMMAN5's picture

You hit it! From left field Italy, who's next? Umm Vietnam, Taiwan, either Koreas? Keep the finger pointing going, cause I didn't do it! And the biggest derivative elephant in the room, exit stage right Dousche Bank you have the most to lose!

Frito's picture

Yep, that's what it is. It's Italy's banking crisis that's the cause of all of this trouble. No one else, just Italy's banks. They caused it all. </sarc>

gregga777's picture

Like Greece, Italy is merely colony of the Greater Fourth German Reich and must remain subservient to the dictates of Der Fuhrer Angela Merkel.

HRH of Aquitaine's picture
HRH of Aquitaine (not verified) Jul 11, 2016 7:14 PM

20 years? What the fuck are they smoking at the IMF? It must be some good shit.

snakehead's picture

If it's 20 years the Dow will be at 300,000.

RawPawg's picture

"Cough,Cough..I think I got the Black Lung,Pop"~Zoolander

snakehead's picture

I thought a forecast was supposed to be about the future. 

Suck my Baltic Dry Index, bitch.

hooligan2009's picture

The IMF can be likened to a protection racket run by window repairers - they eradicate all competition, then throw bricks through your windows and lend you the money to fix them.

of course, LaGarde and Strauss Kahn are the elitist tax-payer funded trough feeders who, like Clinton, are above the law and have the moral decency of a velociraptor that kills for fun and not food.

WTFUD's picture

Wasn't DSK the geezer who was arrested at the airport, cameras at the ready, pulling up his zip after fleeing a hotel having accepted a blow-job from an illegal who was paid by Team Sarkozy to fit him up?

In this case the FBI ran like a bowel movement after a protracted period of constipation, bringing the Alleged sex-abuser to rights before the stains dried; the exact opposite in the instance of the other bowel movement (HRC)

RawPawg's picture

I'll see your Two-Decade Long Recession
and Raise you One-Decade Depression

WTFUD's picture

Italy's black-market is approximately 25-30% of GDP and cosa nostra don't take too kindly to paying taxes. Smashing diverse country though.

Escapedgoat's picture

Cosa Nostra does NOT like to Pay the BIGGER COMPETITION.

Why would they?????

Roanman's picture

This is actually really good news, as the IMF is out there hiring from the same pool of intelectually inbred, drooling morons as are the FED and the Whitehouse. Having got absolutely nothing right for a generation ..... ok, ok multiple generations now, there is not a snowballs chance in hell they are going to get this thing right either because economists are even more relentlessly stupid than blind squirrels are occasionally lucky.

I'm encouraged. This thing could turn around quicker than I thought.

GreatUncle's picture

IMF = FED = Whitehouse ... and all the other usual suspects.


Atomizer's picture
Building a Future for Italy’s Youth—Challenging the Present, Daring the Future

December 9, 2014

Bocconi University Inaugural Speech by Christine Lagarde, Managing Director of the International Monetary Fund

Now that Lagarde played the victim card. Let's take a look a nonpreforming loans. 1999-2015.

Let's head over to databank, shall we. 

Select I, scroll to Italy. Open file.


There you have it! Another lying bitch from IMF. 

Mini-Me's picture

If fractional reserve banking were outlawed for being fraudulent (which it is), there would be no systemic risk.  But then bankers would have to run honest operations.  That ain't happening in my lifetime, so we're stuck with this thoroughly screwed up system.

Get your cash out of the bank, buy some PMs, and wait for the inevitable collapse.

The Duke of New York A No.1's picture

2 decades????? .... by that time the FED FUNDS RATE will be at -20% !!!!!!!!!!!

yellensNIRPles's picture

Try not to arouse me so obviously next time. Shwing.

Grandad Grumps's picture

Maybe the IMF should do something good or right for a change instead of making things worse. Did they ever think of that?

venturen's picture

There is going to be a special place in hell for the current crop of central bankers 

venturen's picture

How about we nationalize the crooked mega banks....should be plenty to fix the problem....THEY CREATED!

hooligan2009's picture

you got it comrade brotherovski!

scubapro's picture mention of brexit causing or adding to italy's woes??  if the british would just work harder and send their money to italy we wouldnt have this mess!

Amun's picture

British might stop doing that and

Cameron is singing, as of today:


orez65's picture

"... Downside risks arise from delays in addressing bank asset quality, ..."



Who the hell comes out with all these euphemisms?

Do governments subcontract LIE MITIGATION COMPANIES ?? 

Atomizer's picture

Look at Turkey jumping at the benefits of joining the European Union. Soros will have to concoct another ambush to set them straight. 


RozKo's picture

Let me get this straight, Japan just agreed to playing a game of helicopter twister with Ben Bernanke as the pivet man but the Italians and EU won't play the bail-in, bail-out game? Meanwhile Deutsche bank is sitting in the corner like a little kid with a very full, smelly diaper demanding everyone else eat their vegetables? ...and this ends how?

hooligan2009's picture

Banco Populare goes first.. then a few other Italian ones, then Credit Agricile goes, UBS and CSFB ... then Deutsche Bank, then Citi...

ummm... four card brag, black two's and one eyed jacks floating...

in the meanwhile, front run the centeral banks and take all your proifts in gold...

Atomizer's picture

Good question. How many banks are Wachovia aka Wells Fargo Bank implicit to drug cartels holding deposits. During the upheavals of bank consolidation, rountinely called the banking institution as Narochovia. 

Atomizer's picture

A new form of Operation Twist. Look back in time. Remember the POMO auction promotion?  Federal Reserve is still trying to clip coupons