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Italy Must Raise €32 Billion for the Banks

July 20, 2017 (EIRNS)—In order to comply with European Union capital rules, Italian banks must raise some €32 billion in the next period, which is about 2% of its Gross Domestic Product. This is because 16 of 19 Italian banks don’t meet European standards on non-performing loans (NPLs), according to some financial blogs, which are extrapolating from European Banking Authority charts. This defines the choice: either Italy must pull out of the EU, or plunder its population in order to meet the Eurozone deficit rules.

European Parliament Member Marco Zanni has forecast a major banking crisis, which, timed with the Italian general elections next year, could make an Italexit scenario possible.

EU standards on bank capital focus on credit, but not on derivatives. Credit losses are accounted strictly, whereas derivative assets are accounted according to blown-up figures produced by the banks’ own models. At the same time, EU regulations prevent banks from renegotiating terms with their commercial debtors, making a solution impossible. This has put pressure on the Italian banks, but has covered up the huge derivatives debt of the northern European banks.

One more aspect aggravating the crisis is that the EU (the European Central Bank and the European Banking Authority) set a deadline for Italian banks for selling NPLs on the market. This pushes the price down, often to 11-13% of face value, whereas a NPL is on average sold at 40% of its face value.