Italy In An Irish Stew

at

Yanis Varoufakis gets around, and much like the dreaded contagion of the financial crash, he’s rarely as advertised. When he appeared on the Russell Brand podcast (the day before the British General Election) he was a little downbeat; not at all positive about Corbyn’s chances.

Whereas, when he spoke at the DiEM 25 meeting in Dublin, he was the embodiment of positivity in Doc Martens. So much so that Vincent Browne told him to stop being so idealistic!

I guess the lesson is this: know your audience.

It is with this simple wisdom in mind that I read about last weekend’s Italian bank bailout. You see Italy has just pumped €5 billion into two banks that are not considered systemic to the Italian economy. The final bill (if any of these things can have a bill that doesn’t include the societal damage) is estimated to be in the region of €17 billion.

This burden, and it will be a heavy austere burden, will fall on the citizens of Italy and not the bondholders of Italian banks.

But the good news is that “Markets have rallied as a result”. The socialisation of private debt in order to protect market confidence, how very Irish of those Italians, hey?

A couple of weeks ago the Spanish had there own bailout bonanza. Santander, the private bank, raised €7 billion in a rights issue to bailout the Banco Popular. Santander then burned Banco Popular’s bondholders to the tune of €3.3 billion and completed the purchase for the symbolic amount of €1. No taxpayers money was involved in this Bailout/Bail-in.

So why did Italy opt to burn the citizenry and Spain the bondholders? The answer lies with Yanis Varoufakis and knowing your audience.

The Italians are less than 10 months away from a General Election, that’s just enough time for voters to not feel too much pain from the bailout and what would have been too little time for large investors and bondholders of the banks to forget their pain.

The two Italian Banks in question, Banca Popolare and Veneto Banca, have depositors and senior creditors who the Italian government do not want to upset.

So rather than use the EU’s bank-failure law, (the Bank Recovery and Resolution Directive) they took “a very pragmatic decision… that shouldn’t affect investor confidence”. Gotta keep those investors confident, right?

So we have an a la carte menu in Europe now. I’d like one slice of a bailout, a large portion of a bail-in and can I get a good bank/bad bank diet coke to drink? Certainly, Sir. Could I interest you in some pragmatic pie for dessert?

Meanwhile, in Ireland we successfully sold just over a quarter of AIB, raising around €3 billion. Money, as the the best little country in the world to do as it is told, we are going to use (waste?) in paying down our debt. We are eating the Irish-Italian menu of toxicity. The one whose audience is for the bondholders, private investors and the European Commission, and not the citizens of the state.

When Spain breached the EU deficit rules the EU Commission sent them a fine of €2 billion. Spain promptly told the EU to go take a long walk on a short pier. The EU backed down and sent a symbolic fine of €0, citing “past fiscal efforts and the risk of a backlash” as their reasons for capitulation. The EU Commission knew its audience, it backed down.

Here in Ireland, we run in fear of the EU Commission and its possible fines. Irish Water, paying down debt and our budgetary gymnastics around the Fiscal Deficit are all examples of our Government working for the EU audience, rather than us.

In fact, the only time we stood up to the EU Commission was in the interests of Apple’s taxation acrobatics.

We have a new leader who doesn’t speak power to truth, he’d rather discuss pop culture. He has a grand vision, with himself at the head of it. His backbone in facing down Fianna Fáail and brazening out the Máire Whelan stroke goes missing when he’s representing you and I.

When he’s playing to his favoured audience he becomes Hugh Grant, or some other narcissist . What hope do we have of avoiding the property bubble floating along Sir John Rogerson’s Quay?

Yanis Varoufakis has a vision for a European Constitution that puts the citizens ahead of the markets. Yanis, I’d imagine, sees what has happened in Italy as the opposite of his vision; a missed opportunity to show how Europe can act as a protector of people and not markets. DiEM 25 has many great solutions, but so did Italy last Friday.

The EU had an opportunity to help Italy, the Italian government had a choice between market confidence or their people’s well-being. Both parties chose to opt for the Irish Stew. Me, I’d love some Spanish tapas. Luckily for me, they serve them in the Gravedigger’s.

Tony Groves is a full-time financial consultant and part-time commentator. With over 18 years experience in the financial industry and a keen interest in politics, history and “being ornery”, he has published one book and writes regularly at Trickstersworld

Pic: Getty

31 thoughts on “Italy In An Irish Stew

      1. mildred st. meadowlark

        You’re no fun at all anymore Tones.

        I think you’re a lovely singer Bert

          1. mildred st. meadowlark

            Oh my… A long-time fave of mine.

            Luke Kelly’s version makes me cry every time.

  1. Twunt

    Varoufakis is a Marxist. Is that the path you are advocating?

    There is a very good reason for the list of former Marxist states being a lot longer than the list of current Marxist states.

    1. Anomanomanom

      If that’s all you got from reading that then you either don’t understand it or you do so are picking the only thing you can out to have a moan about.

      1. Twunt

        I understood it quite well. The Italians got shafted, they had a clear path to burning bondholders, where we had a very uncertain outcome for the same. But they still choose the same path as us. I don’t know why.

        My problem is with using Varoufakis as some beacon of sensibility and reason. The man is a fraud, who would burn it all down just to see if he was right.

    2. ahjayzis

      I read his book – whatever he is, his ideas on the self-inflicted eurocrisis are just common sense.

      Common in the sense that his shared prescription lead him to make common cause with the likes of Margaret Thatcher’s former Chancellor, a former chair of the Federal Reserve and, behind closed doors, Christine Lagarde.

      What they advocate is that democracy trumps “market sentiment” and people’s lives are worth more than spent political capital and if you insist on continuing to impose technocracy on populations and extract others losses from their pockets, you’re heading for big, big trouble.

        1. AnAccountant

          Who would have thought that stealing money from the masses would make them angry?

          1. ahjayzis

            It’s not even the stealing. It’s the endless, self-renewing debt and shrinking of the economy.

            There’s nothing more lethal than a creditor who doesn’t want their money back.

  2. Frilly Keane

    well I’m saying it now
    I’m too stupid for this kinda talk

    and I just don’t get “speak power to truth”
    the other way around is more my line

    so I’m not your Audience Grovel
    but before I say bye bye

    Spain and Italy have very different economies to us here in the Republic
    both have MASSIVE Manufacturing output – and MASSIVE Indigenous Industries
    and Both have MASSIVE food Production
    and Both have MASSIVE tourism
    even on a per head value

    and one’ve them is a G8
    and the other has savage Healthcare and Education infrastructure
    the likes we’ll never see here

    and I can drive from one to the other

    1. egghead

      Sad but true, the law is the law, except when it’s not the law. Might is Right.
      Grovel is a nice touch.

  3. Andy

    5 billion bailout? Italians feel it in their pocket?
    Italy’s national debt is $2.4 trillion – this isn’t even a rounding error.

  4. John

    The author is either ill informed or is too busy promoting the Varoufakis agenda to understand the detail of what went on here.
    In both instances, senior bondholders were completely spared from taking a hit, as they were in Ireland.
    In Italy’s case, around 40% of junior debt was held by retail investors – these are ordinary Italian families missold savings products by Italian banks. They could not be bailed in for obvious reasons.
    The peculiarities of national banking systems dictate how best to deal with banks. It may surprise the author but no government actually wants to commit taxpayer money to support failing banks. There is no conspiracy here but after months of looking for private sector solutions, only one solution remained to safeguard financial stability.

Comments are closed.