Protectionism Is More Than a Political Statement

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In Italy, the banks, according to the European Central Bank, are saddled with $385 billion of non-performing loans, which is one-third of the euro zone’s total. Three banks in Italy, including Monte dei Paschi, the world’s oldest bank, are struggling to survive, and the government is in a battle royal with the EU and the ECB concerning their restructuring, a Bloomberg View reported. Italy has set up several bad bank funds, but they are woefully inadequate to confront the real losses that have taken place. My view of the entire Italian banking system is that it is “bust.” The situation is a ticking time bomb and it might explode at any time given the precarious position of the outcome, for both equity and debt holders, under the EU’s rules. The EU could bend its rules, once again, and try to stabilize the political situation in Italy, but even then the Five Star Movement, which wants to exit the EU, is likely to still be ahead in the polls. Further, it will do nothing to prevent a wholesale banking crisis that is not too far out on the time horizon. Yet again, Greece is another crisis in progress, as the nation has a $7 billion debt payment to make in July and nowhere near the cash on hand to pay it. The official debt-to-GDP figure is 183 percent, according to EU data, but it is a nonsensical number. Read more.