Every day problems of Italian banks, which deteriorated after Brexit, getting worse. Bad debts of 360 billion euros, could provoke a complete collapse of the banking sector. But now Deutsche Bank has become a major risk.
The Prime Minister of Italy Matteo Renzi said that unilaterally willing to spend billions of euros to support the banking sector, even without the approval of Brussels. It is unlikely to appeal to German Chancellor Angela Merkel and other advocates of strict implementation of the rules of the Eurozone.
But Renzi also noted that other European banks have much more problems than the Italian.
“If non-performing loans is the number one problem, the problem of derivative instruments with other banks a hundred times worse. The ratio is like one to hundred”, – he said.
Italian Prime Minister, of course, meant tens of trillions of dollars of derivatives on the balance sheet of Deutsche Bank.
It is also worth noting that the banking crisis have already come to Germany. On the verge of collapse was Bremer Landesbank, although the volume of problem assets is only 29 billion euros.
While chief economist at Deutsche Bank David Folkerts-Landau acknowledged the problems and called for the implementation of multibillion-dollar programs to save European banks.
In an interview with Welt am Sonntag economist said European financial institutions should obtain fresh capital to recapitalize after a similar financial aid in the United States.
However, he said that the US program was implemented almost 10 years ago, and in Europe at that time, advocated “cautious” fiscal and monetary policy.
According to the economist, the United States helped its banks, spending $475 billion, and this program is necessary in Europe, especially for banks in Italy. In other words, a representative of Deutsche Bank is convinced that Europe needs to repeat the steps of the United States.
“In Europe, the recovery should not cost so much. Program 150 billion euros should be enough to help recapitalize European banks,” said David Folkerts-Landau.
The decline in shares of banks is a symptom of a much larger problem, namely the fatal combination of low growth, high debt levels and the threat of deflation.
“Europe is seriously ill and needs quick solution to the problem, or it will face collapse,” – said the chief economist.
According to him, to rescue banks in Italy will need at least 40 billion euros. The problem is so acute that Deutsche Bank economist convinced of the need to breach existing European rules.
Thus to write-off of deposits and to use other methods, which will hit the savings of the people, is completely unacceptable, as it paralyzes the banking sector in Italy and other places. People just stop believing the banking system.
Surprisingly, when they talked about Cyprus and Greece, few people worried about the savings of citizens, economists, analysts and officials insisted that the question is in maintaining stability, and therefore something you have to sacrifice. But as soon as the crosshairs were Italy and Germany, it is time to “change the rules”.
The only question is whether David Folkerts-Landau banks is worried about Italy or is he worried about the fate of his employer?
Most likely, if Germany’s largest Bank supports the rule change, resistance to Merkel and Schaeuble would soon be broken. This means that the start-European Bank bailout, but, as always, will be paid by the taxpayers.
This is unlikely to appeal to many, but will give an additional advantage to the nationalists, so the bailout will strengthen the further fragmentation of Europe.
