Over Christmas, more than eight years after the last major banking crisis, we saw the bailout of another Italian bank, the Monte dei Paschi di Siena, following the defeat of the left-wing government in a referendum on the reform of the country’s constitution.
Even by the standards of eurozone banks, Italian banks have a vast amount of debt, amounting to over 20% of the nation’s current economic output, which makes any sustained bailout particularly troubling for both Italy and wider eurozone.
The problem, other than rampant crony capitalism and corruption, is that Italy has been unable to grow its economy since the the eurozone was launched in 1999,rigidly locked into a high-value currency straitjacket, which benefits mainly German exporters.
As usual, this latest bailout will be paid for by more quantitative easing (basically printed money indirectly financing government bonds) supplied by the Italian-run European Central Bank, which is increasingly propping up the failing eurozone, outside of Germany. As many commentators warned at the time, the eurozone is a German-led, big business-inspired political project backed by up EU-wide taxpayer guarantees, which includes the UK, despite the Brexit vote last year, that any systemic financial shortfall will be met with public money, real or otherwise.
With the benefit of hindsight, it is now obvious that the eurozone is unsustainable, and is continuing to do very real social and economic damage, not just to Spain and Greece, where youth unemployment is hovering around 50%, but also in Italy, which is teetering on the brink of another political collapse because of its ongoing economic malaise, conclusively indicated by this latest bank bailout. Italy already has state debts approaching a colossal 135% of GDP, even before this latest bailout. And France is also struggling as well, as a result of eurozone stagnation, a political dynamic that could lead to a major electoral rupture later this year, when the anti-eurozone Front National, led by Marine Le Pen, is expected to do well.
With large Italian banks now openly failing, 2017 could finally be the year when the eurozone chickens come home to roost!