And now, on Italian banks, the ABI is curbing the FT: Giovanni Sabatini, general manager of the Italian Banking Association (ABI) wrote directly to the British newspaper, responding in kind to the article published last July 27 by Moritz Kraemer “Italy’s blocking of the ESM is an act of self-sabotage”. Kraemer referred to the Mes dossier, defining the Meloni government’s attitude towards the European Stability Mechanism as an act of self-sabotage.
In that article, the Italian banking sector was described, recalled Giovanni Sabatini, as “very vulnerable”: a definition that the general manager of ABI no longer reflects the new reality of the facts, and which rather follows a narrative by now outdated.
Sabatini’s letter has been published by the Financial Times itself on 2 August 2023.
“The description of the Italian banking sector as highly vulnerable, provided by Moritz Kraemer in his nonetheless interesting opinion ‘Italy’s blocking of the ESM is an act of self-sabotage’ (Opinion, of 27 July 2023), seems to draw more on the chronicles of the past than to recent data. Contrary to this narrative, the latest reports from banking authorities and analysts present official data demonstrating robust health conditions for Italian banks, even when compared to the broader European landscape.
“During the last decade, significant progress (by Italian banks) has been made in key indicators such as those relating to capitalisation, asset quality and efficiency”. These indicators “have often stood at values above the European average”.
And “the latest numbers on profitability further confirm the high positions that Italian banks hold in the European rankings”.
The article published in the Financial Times in the ‘Opinions’ section addressed Italy in decidedly severe tones.
Moritz Kraemer, chief economist of the German bank LBBW, had not spared harsh criticism of the Meloni government, criticizing it for the decision to block the Mes.
“A major obstacle prevents the ESM from supporting euro area banks in times of crisis. This obstacle is called Italy”. Kramer spoke of an attempt by Prime Minister Giorgia Meloni to propose an exchange to Europe: Italy’s approval of the Mes in exchange for fiscal rules (therefore rules on debts and deficits, within the new, less rigid Stability and Growth Pact”.
“These two issues – wrote the economy – are totally disconnected, a factor that makes Rome’s attitude nothing more than blackmail”.
“Within Italian politics, the word MES is equivalent to economic suffering and austerity”, recalled Kraemer, also referring to the possibility that Italian politics is still grappling with the memory of that famous letter, from 2011, that the then president of the ECB Jean-Claude Trichet sent to the then president of the Council. “Trichet was very explicit in illustrating the concrete steps that the Italian government should have taken to mitigate the crisis. Shortly thereafter, Berlusconi resigned and was replaced by technocrat Mario Monti.
But regardless of what could be the possible psychological reasons that beset Italy, continued the German economist, “the refusal to ratify the ESM treaty is an irrational act of self-harm. More than holding the rest of Europe hostage with the Mes, Italy is behaving like someone who is pointing a gun to his head, yelling that if he doesn’t get what he wants, he will pull the trigger ”.
The point is that – and this is the phrase that prompted Giovanni Sabatini, general manager of ABI – to write to the FT – is that Italy has one of the most vulnerable banking systems in Europe”.
Kraemer referred to the MPS dossier – which just today, among other things, published a solid quarterly report, announcing that it had concluded the second quarter of 2023 with a leap in net profit of +62.6% compared to the first quarter, 383 million euros, thus ending the first half of the year with net profits of 619 million, approximately 12 times the net result of the first half of 2022, equal to 53 million euros.
Monte dei Paschi di Siena has been defined by the German economist as a “powerful reminder of the fragility” of the Italian banking system.
But Kraemer didn’t stop there, also recalling the deadly embrace, the so-called doom loop between BTPs and Italian banks, or between the made in Italy banking system and the country’s public debt.
“Italian banks hold an excessive amount of their assets in Italian government bonds – wrote the economist – The ‘doom loop’ is alive and well”. Which means that “any possible sell-off affecting sovereign bonds (therefore BTPs) would hit the Italian banking system more strongly than it would in any other system in Europe. Which makes Rome’s obstinacy (to say no to the ESM reform) disconcerting”.
Consequently, according to the author of the article published a few days ago in the Financial Times, “a financially vulnerable nation like Italy would not be an innocent victim of the evil of speculators if it decided to refuse the protection that could be provided by the ESM. Italy’s blockade of the Mes would make the country guilty, not a victim”.
Heavy words for Italy, the Meloni government and the Italian banks, which Giovanni Sabatini has decided to deny with the publication of a letter to the FT.
Referring to recent data which confirmed the soundness of Italian banks – see the results of the stress tests launched by the EBA (European Banking Authority) and the ECB – Giovanni Sabatini wrote in black and white that these results were “achieved with public aid minimal, with the exception of a single bank that has been nationalized and is now undergoing a privatization process after completing a successful recovery path.” And these factors make the Italian banking sector one of the most solid in the European Union – underlined the director general of ABI – In addition, it is worth considering that the economic context in which Italian banks operate is reporting stronger growth than to that of many other EU countries, leaving aside those that have suffered from negative GDP growth”. Which, for the record, it must be emphasized, however, also affected Italy in the second quarter.
“In the debate on the European Stability Mechanism (MES), concluded Giovanni Sabatini – all opinions are legitimate, but their credibility depends on the facts”.