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Wolfgang Schäuble’s Swimming In Prosecco

“Things have gone very well in Italy?” What have you done with the real German finance minister?
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By Olaf Kosinsky (Own work) [CC BY-SA 3.0 de], via Wikimedia Commons

By Olaf Kosinsky (Own work) [CC BY-SA 3.0 de], via Wikimedia Commons

Germany’s finance minister, Wolfgang Schäuble, is not especially known for the effusiveness of his praise, especially when discussing his sunny and profligate southern neighbors. The kindest thing he’s said in public about them is that Greece was “not a hopeless case,” which admittedly was a tremendous upgrade from his previous appraisal of that country.

At about this time last year, Schäuble was offering some of his impeccably German finger-wagging in the direction of Italy. He was not at all interested about speculating on whether Italy would need to bail out its banks, but was rather keen to speculate on “why did we introduce bail-in rules in the first place” if Romance language-speaking countries were just going to ignore them anyway. So you might well have expected him to be somewhat less than thrilled with Italy’s yuletide rescue of the exceedingly picturesque and troubled Monte dei Paschi di Siena, and with last month’s bailout of two other failing Italian banks. As it happens, he can hardly contain his pleasure with the situation.

"Things have gone very well in Italy," he told reporters on arrival at a meeting of euro zone finance ministers where problems with bad loans in the banking system are on the agenda.

"Italy has done very well in a difficult situation and I think it's a good basis for us to continue our work, including Italy itself of course. Of course, they also have a complicated political situation but step by step things are getting better."

Of course, Germans are heading to the polls in a couple of months, and maybe Wolfie’s helping his boss Angela Merkel out by assuring his countrymen that their euros are not being thrown upon another PIGS roast. But as it turns out, there’s some genuine reason for optimism, even for the dour Schäuble.

These events promise to take almost €50 billion of bad loans out Italy’s banks, leaving about €275 billion in the system. However, UniCredit has pledged to sell €18 billion worth as part of its restructuring; and €57 billion are on the books of Intesa Sanpaolo, which as Italy’s healthiest bank is well placed to deal with them.

Italy’s problems are starting to look less dramatic. Yes, the country could have dealt with its weak banks sooner and in a less complicated way had there been the political will. But it has now neutered its worst problems at a direct cash cost to the taxpayer of less than 1% of GDP—significantly less than Spain or Ireland spent several years ago….

Italy, long the source of worries about European instability, might finally be aiding the continent’s recovery.

But who will talk Europe’s southern periphery down and serve as the continent’s judgmental-accountant-in-chief if not Schäuble? Luckily, the EU has an admirable understudy waiting in the wings in the form of Dutch finance minister (for now) and Eurogroup head Jeroen Dijsselbloem. And, well, he’s afraid that amidst all the drinking and whoring and bailing out, everyone, even the usually unfailingly correct Schäuble, has forgotten that there are rules that must be followed no matter what, even if not following them has led to the aforementioned successes and uncommon smile upon the face of his colleague.

"The question is if the state aid rules, that apply in any case, should not be adjusted now," Jeroen Dijsselbloem told reporters in reply to a question on whether Italy's public rescue of Veneto Banca and Banca Popolare di Vicenza was in line with the spirit of EU banking rules….

"We need to make sure that even if other legal frameworks apply, the state aid rules should be to the same kind of level," Dijsselbloem said.

Germany’s Schaeuble Says Italy Has Handled Bank Issue Well [Reuters via NYT]
How Fixing Italy’s Banks Is Helping Europe Heal [WSJ]
Italy’s Bank Rescues Raise Issue of EU State Aid Rule Changes-Dijsselbloem [Reuters via NYT]



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