More EU Fractures——– Italy Threatens to Defy Merkel, Brussels Over bank Bailouts

Rules are rules, unless of course they aren’t.

Brussels has rules on budget deficits, widely ignored by Spain, France, Greece, and historically even by Germany.

Brussels also has new rules on bank bailouts. Four times Brussels refused Italian Prime Minister Matteo Renzi’s request for a state sponsored bailout of Italian banks because it’s against the rules.

Renzi threatens to go ahead anyway. And if he does, who can stop him?

Please consider Renzi Ready to Defy Brussels and Bail out Italy’s Troubled Banks.

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.

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.

Brussels last week signed off €150bn worth of precautionary measures allowing Italy to help banks with short-term liquidity problems. But of greater concern is pressure on capital, say analysts. Stress test results are due on July 31 and senior bankers consider Italy’s weaker banks — including its third largest Monte dei Paschi — may be found to be undercapitalised.

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.

Merkel-Renzi Showdown.

Last week German chancellor Angela Merkel refused Renzi’s plans to bail out Italian banks for the fourth time.

Merkel chastised Renzi, “We wrote the rules for the credit system, we cannot change them every two years.”

Italian banks are insolvent. For details, please see Italy’s Zombie Banks on Death Bed, Bail-Ins Coming?

Arguing is over how to lie about the obvious, and how to bail out the banks against the rules.

There’s massive infighting over nearly everything now.

British news outlets admit Merkel Ready to Boot Juncker.

Renzi is now prepared to defy Merkel. And Beppe Grillo, Italy’s Eurosceptic Five Star Movement leader stands on deck, ready to replace Renzi if depositors are bailed in.

OK chancellor, what the hell are you going to do if Renzi goes ahead?

The likely answer is “breathe a sigh of relief” no matter how she publicly expresses herself.

Mike “Mish” Shedlock