Monte dei Paschi bailout comes under fire in Berlin
Concern that move risks undermining EU rules aimed at ending state rescues
December 23, 2016
by: Jim Brunsden in Brussels, Guy Chazan in Berlin and James Politi in Rome
Brussels is facing calls from German lawmakers to take a firm line in policing Italy’s bailout of Monte dei Paschi di Siena amid concerns in Berlin that the episode risks undermining EU rules intended to end the days of taxpayer bailouts.
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The Italian government on Friday confirmed that it would inject capital into MPS. The move is being watched closely in Germany, which is determined that the rescue should not set precedents that could be exploited by other banks to avoid the full force of EU regulations.
The bailout of MPS has even prompted warnings by some German lawmakers that shoring up MPS with public money runs counter to EU policy.
Carsten Schneider, a social democrat member of the German Bundestag’s finance committee, told the Financial Times: “It’s unacceptable that the taxpayer is now having to save them,” adding that the lender should “maybe even [be] shut down.”
Rome has said that it will seek to carry out a “precautionary recapitalisation” of the bank, a step that will lead to losses being imposed on the bank’s shareholders and junior bondholders, but that will spare more senior creditors.
It’s unacceptable that the taxpayer is now having to save them
Carsten Schneider
The approach avoids more stringent EU post-crisis rules that require 8 per cent of a struggling bank’s liabilities — including senior creditors if necessary — to be wiped out before the taxpayer can step in.
Rome has insisted that MPS does meet the conditions for a precautionary recapitalisation set out in EU law, not least because the bailout is intended to address a capital shortfall revealed by a stress test earlier this year.
Its plans for the bank will need approval from the European Commission, the EU’s top state-aid regulator, in a process expect to last at least two to three months. The European Central Bank, MPS’s supervisor, will also need to give its assessment of the bank’s capital needs.
A spokesperson for the commission said that officials “will now work with the Italian authorities and the responsible supervisory authorities to confirm if conditions are met” for a precautionary recap.
The prospect of a bailout without full application of the EU rules on bondholder losses has prompted unease in Berlin.
Hans Michelbach, a lawmaker representing Angela Merkel’s CDU/CSU party on the Bundestag finance committee, said that EU rules “are being circumvented in the case of MPS”.
“This is unlawful state aid from the Italian government which is providing capital to the bank,” he said.
More generally, Berlin is urging Brussels to be thorough in making sure that MPS really does meet all the conditions, so as to avoid any precedent being set that could make it too easy for banks to make use of this option in future.
EU legislation from 2014 sets a number of criteria that have to be satisfied for a precautionary recapitalisation to be possible. These include that aid must be temporary and must not be used to offset recent or expected losses.
