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Italy’s teetering banks will be Europe’s next crisis

economist.com

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Re: Italy’s teetering banks will be Europe’s next crisis

#101

Post by iofj »

glenndebacker wrote: post #42
guelo wrote: post #24

It’s easy for Merkel to insist that Italy has to strictly follow EU rules since she doesn’t have to win an Italian election. The Euro just seems like a complete failure. Giant economies are limping along with 20% unemployment, unable to recover 8 years after the recession. In contrast the US has managed an OK recovery, now closing in on full employment. The problem is that each EU national leader is accountable only…

"The Euro just seems like a complete failure. Giant economies are limping along with 20% unemployment, unable to recover 8 years after the recession. In contrast the US has managed an OK recovery, now closing in on full employment." You are aware that the problem with the EU banking reforms (or lack off) was also that the UK didn't wanted stricter rules with regards of the city of London... ? They even wanted an exem…

Whereas the US ... everything is fine and dandy.

https://fred.stlouisfed.org/series/DALLCIACBEP

https://fred.stlouisfed.org/series/NCOALLCIACB

(note that 50% or so of loans usually migrate from the first graph onto the second)

Not that the fact that the interest rate got 7 years at zero shouldn't make every American go "oh my god ! They've stolen my pension !". But it might even be worse. Aside from enriching the already supremely wealthy, they may also have created the next crisis. However bad loan repayments are now, they will get worse fast if the FED hikes rates. If the US doesn't hike rates, your assessments of how your pension will pay out should be divided by a factor of 3-10.

TLDR: this is not a local crisis, and if something like DB goes bankrupt (it's down 92% from it's peak), it won't be a European crisis.

Re: Italy’s teetering banks will be Europe’s next crisis

#102

Post by return0 »

legulere wrote: post #90
guelo wrote: post #24

It’s easy for Merkel to insist that Italy has to strictly follow EU rules since she doesn’t have to win an Italian election. The Euro just seems like a complete failure. Giant economies are limping along with 20% unemployment, unable to recover 8 years after the recession. In contrast the US has managed an OK recovery, now closing in on full employment. The problem is that each EU national leader is accountable only…

I still haven't seen a good reasoning why the Euro is to blame for the economic problems in southern Europe. It certainly is a issue that those countries can't devalue their currency anymore, but devaluing is not a miracle cure.

Blaming the euro masks the real reason that southern economies went south: The reasons are actually outside the EU. The un-competitiveness of the south was subsidized by the EU for decades, and has turned greece , spain and portugal to dependent nations with little innovation. People don't buy the idea that making their labor cheaper will bring prosperity. Instead, they opt to leave their countries in search of better pay, mainly because they can, and are educated enough.

Unfortunately , ECB policy keeps pacifying these problems instead of ringing the bell. Devaluation inside or outside the EU has the same effect, the difference is the existence of the ECB.

Re: Italy’s teetering banks will be Europe’s next crisis

#103

Post by kbart »

rubber_duck wrote: post #81
netcan wrote: post #62

Earlier quoted context omitted.

I'm not strongly opinionated on what's wrong with the euro currency, but this is a pretty major issue with the EU generally. There isn't a coherent democratic polity, it's being governed like a trade agreement while acting like much more. I think Brexit highlighted this big hole. Who spoke for the EU? You'd occasionally see a headshot with a "EU President" title attached to it, which would then be dismissed in favour…

>The EU needs a face, parties with cross-border support, democracy, mandate... You know what's funny - US is constantly railing about inequality - meanwhile median income between poorest and richest EU members is close to 10x - in the US it's ~2-3 between states. It's no longer "the 1% are exploiting us" narrative and "democracy will save us" - these are similarly sized countries where people are 10x richer in one co…

"meanwhile median income between poorest and richest EU members is close to 10x - in the US it's ~2-3 between states"

That's comparing apples to oranges. Country != state.

Re: Italy’s teetering banks will be Europe’s next crisis

#104

Post by Hermel »

vidarh wrote: post #93
sievebrain wrote: post #66

Earlier quoted context omitted.

This sort of argument is merely playing with words and has no intellectual merit. The EU's directives MUST be passed into law due to the treaties involved. A country cannot simply refuse to implement directives it does not agree with, without also leaving the EU. Failure to obey the rules is met with fines and other forms of punishment. Whilst a handful of lawyers may pretend this is not a transfer of sovereignty, no…

The larger difference is that the member state is free refuse to implement the law and choose to leave - the directive can not be imposed. You may consider that just playing with words, but it makes the difference between being legal, and being a violation of constitutional law of a large number of member states, and as a result it makes a substantial difference in how the EU can be legally structured.

Are you saying the EU is basically a clever hack to get around constitutional restrictions?

Re: Italy’s teetering banks will be Europe’s next crisis

#105

Post by liotier »

Hermel wrote: post #27
guelo wrote: post #24

It’s easy for Merkel to insist that Italy has to strictly follow EU rules since she doesn’t have to win an Italian election. The Euro just seems like a complete failure. Giant economies are limping along with 20% unemployment, unable to recover 8 years after the recession. In contrast the US has managed an OK recovery, now closing in on full employment. The problem is that each EU national leader is accountable only…

It would already help a lot if the European commission was democratically elected and if the European parliament was given the power to make laws. (It sounds like a joke, but the European parliament cannot propose new laws - even though that's the usual purpose of a parliament. It is the commission that proposes new laws in the EU.)

> if the European parliament was given the power to make laws

Yes - so you might like this petition I proposed: https://www.change.org/p/empower-european-parliament-with-le...

Re: Italy’s teetering banks will be Europe’s next crisis

#106

Post by AlgorithmicTime »

vidarh wrote: post #56
Hermel wrote: post #27

Earlier quoted context omitted.

It would already help a lot if the European commission was democratically elected and if the European parliament was given the power to make laws. (It sounds like a joke, but the European parliament cannot propose new laws - even though that's the usual purpose of a parliament. It is the commission that proposes new laws in the EU.)

For that to happen, Europe would need to go federal. You can't have a legislative parliament in the current system because it'd violate the constitutions of a large proportion of the member states to delegate sovereignty somewhere else. This is the big challenge. People complain about the lack of powers for the EU Parliament, but largely aren't willing to support a model that'd make it possible. This is also why the…

That's high order sophistry.

Re: Italy’s teetering banks will be Europe’s next crisis

#107

Post by vegabook »

ahem...valuation / assets:

  JP Morgan: 9%
  Goldman Sachs: 7.1% 
  BoA: 6.5%
  Santander: 3.5%
  Societe Generale: 3% 
  BNP Paribas: 2.5% 
  Unicredit: 1.5%
  Deutsche Bank: 1.0%
Two lessons: US banks are much better capitalised in the eyes of the market, and it is Deutsche Bank, not any Italian bank, which appears to be the biggest risk to European (and global) banking systems. It has a balance sheet of 1.6 trillion, supported by a market equity valuation of only 16 billion. Deutsche also has a reported 55 trillion notional of derivatives exposure.

Sources: Yahoo finance for assets as of 2015, Bloomberg terminal for latest valuation.

Re: Italy’s teetering banks will be Europe’s next crisis

#108

Post by guard-of-terra »

visarga wrote: post #78
netcan wrote: post #62

Earlier quoted context omitted.

I'm not strongly opinionated on what's wrong with the euro currency, but this is a pretty major issue with the EU generally. There isn't a coherent democratic polity, it's being governed like a trade agreement while acting like much more. I think Brexit highlighted this big hole. Who spoke for the EU? You'd occasionally see a headshot with a "EU President" title attached to it, which would then be dismissed in favour…

Direct voting, like the UK referendum, can lead to impossible situations. People vote for what they wished was the reality, and many times it's just not possible.

You can learn to vote reasonably only if you do it.

Re: Italy’s teetering banks will be Europe’s next crisis

#109

Post by pjc50 »

visarga wrote: post #74
sievebrain wrote: post #68

Earlier quoted context omitted.

There is no intellectual dishonesty. Fixing the Eurozone's banking problems (assuming you believe those regulations would do the trick) is not the UK's problem and it's not the UK that blindly insists on a one-track, one-speed Europe: it's Germany and France that are wedded to that concept. They could easily have introduced new rules only in the countries that wanted them. But regardless, the problem in Italy is simp…

> Banks make loans, that's kind of what they do, How naive. Banks have to take collateral and give loans only to people/companies that have good track record. What they did is to give loans to people who could not pay back, which is a fatal mistake for a bank.

give loans to people who could not pay back

The people they lent to seemed like reasonable credit risks at the time - this isn't the same situation as US "subprime". Fundamentally there's no way to know whether a lender will be able to pay back, you can only make statistical guesses at the time based on limited information.

There's an additional problem in that NPL levels depend on the state of the economy as a whole, which can become a self-fulfilling prophecy.

(See e.g. http://english.mps.it/media-and-news/press-releases/2016/Pag...

Edit: MPS isn't even loss-making, at the moment. The cliff is not so close. http://markets.ft.com/research/Markets/Tearsheets/Financials...

Re: Italy’s teetering banks will be Europe’s next crisis

#110

Post by rubber_duck »

kbart wrote: post #103
rubber_duck wrote: post #81

Earlier quoted context omitted.

>The EU needs a face, parties with cross-border support, democracy, mandate... You know what's funny - US is constantly railing about inequality - meanwhile median income between poorest and richest EU members is close to 10x - in the US it's ~2-3 between states. It's no longer "the 1% are exploiting us" narrative and "democracy will save us" - these are similarly sized countries where people are 10x richer in one co…

"meanwhile median income between poorest and richest EU members is close to 10x - in the US it's ~2-3 between states" That's comparing apples to oranges. Country != state.

>Country != state.

This is my point

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