Italy’s Finance Minister, Pier Carlo Padoan, has explained that the nation’s banking system can be recapitalized without a formal bailout or financial aid from the European Stability Mechanism.
The country’s policymakers and European Union officials have been working to deal with its weak banking system in the past months, which has been stalled by non-performing loans predicted to amount to 360 billion euros.
Earlier reports implied that Italian Prime Minister Matteo Renzi was aiming to bail out the banking sector with taxpayer funds, which would go against EU regulations. Such action will would oppose to a bondholder bail-in, but would have perhaps secured Italian households which are heavily exposed to the asset category. Those reports have been denied afterwards, and Padoan said the idea was total imagination.
"We are not talking about that kind of money and we are not talking about a bailout. Bailout is ruled out in the European context. So we are working within the rules, within the bail-in system, which implies strong participation by the shareholders and stakeholders in recapitalizing the banks," he said.
"This is helped by the fact that we are putting in place a legal framework in dealing with NPLs," Padoan added. When asked about possible assistance from the European Stability Mechanism, he was equally adamant.
"The ESM implies an economy with problems and in danger. This is absolutely not the case in the Italian economy, we don't need the ESM, we will not ask for the ESM. And as far as the resources are concerned, this is not a problem, because these resources will come from the private sector," he noted.
In the case of Banca Monte dei Paschi di Siena, private funds seem to be beneficial. The bank guaranteed a striking 5 billion euro rescue package in late July, after months of worries about its portfolio of bad loans sent its share price plummeting.
The Bank of Italy’s liabilities with other euro zone central banks climbed to a record high in August, due to fading appetite for Italian assets as its commercial banks struggle with problem loans ahead of a constitutional vote.
Sluggish Global Growth
Padoan offered a blunt assessment of the global economy on Friday, pushing governments and central bank policymakers to organize all the instruments that are at their disposal to incite growth.
"Yes of course (growth is) disappointing, unfortunately not just for Italy but for the euro zone and I would say for the global economy," he told reporters. "We are heading to the G-20 summit in a couple of days and this will be the main topic which means that policy must do more and we must mobilize all the instruments that are at our disposal."
The Italian Finance Minister also added that static growth was a global and a Eurpean issue. However, he mentioned that there were countries such as Italy, which has specific problems.
"We're dealing with them. They are both structural and short term," he added.
New statics released on Friday confirmed that Italy’s economic growth was dull during the second quarter of fiscal year 2016, compared with the previous month. Annual gross domestic product growth saw an increase of 0.8 percent, compared to the same period last year.