December 23, 2016 - Class CNBC aired an interview with SEP Scientific Council member Francesco Saraceno, in which he discusses the government rescue of Monte dei Paschi di Siena. He observes that this is a classic case of a political timeline negatively interfering with the resolution of a crisis. Everyone was well aware of the European Central Bank’s December 31st deadline. However, it would have been politically inconvenient to settle the matter prior to the referendum. After the negative result, a new government had to be formed, and only now can the issue be dealt with. One upside is that the Minister of Finance has not changed, so there is a high likelihood that the ball can start rolling quickly. Of course, many had clung to the hope that a market solution could be found, the chances for which dissipated earlier this week. The hope is that, despite the application of bail-in, certain categories of title holders might be saved. While the €20bn in deficit spending could raise eyebrows at the European Commission, given Italy’s already high public debt, some indulgence is expected. After all, the country is only in this situation because its banks ran into hot water after bail-in regulations went into effect. Many euro area countries, including France and Germany, had rescued its banks in the exact same way before 2014, prior to the regulations going into effect.
- The original interview (in Italian) is available from Class CNBC.