The Macroeconomics of the European Crisis

Today I gave a  (long) talk at the Conference on Sovereign Risk and the Euro. The presentation, The Macroeconomics of the European Crisis, went through the crisis’ common causes (current account imbalances), the heterogeneous labor market outcomes, and sovereign debt vulnerabilities to political risk. Those interested in the presentation can download  it...

Read More

The Italian Banks’ Bail-out: A Deafening Silence

What are the main lessons from the Italian bail-out of the two Veneto region’s banks ? At the European level, the bail-out is a nail in the coffin of the Bank Recovery and Resolution Directive (BRRD), as it shows that European rules for protecting tax-payers can be easily circumvented. It creates a precedent that does not bode well for future banking resolutions. It raises a serious moral hazard issue for national banks and national regulators: just invoke the magic F-word, “Financial-stability”  and the EU will let tax-payers foot the bill. Do you remember the paramount objective of breaking the bank-sovereign debt loop? It’s down the drain. The Government’s main justifications for allocating up to a point of GDP to the rescue and for heavily subsidizing Banca Intesa are very weak. a) Fears of contagion to other banks is hard to imagine: the 2 banks make about 2 percent of the Italian banking system’s assets, according to the FT. b) The need of fully bailing-out senior bond-holders is also hard to accept. Large private bond holders were not rescued in the case of the regional banks of Etruria, Marche, Chieti and Ferrara. It’s hard to imagine large investors being cheated by banks.  c) A credit crunch of SME’s due to the disappearance of credit lines could have been avoided by other market mechanisms such as securitization. d) A bank-run on deposits...

Read More

Italian Banks: Questions of Transparency and Credibility

The details of the  plan for the liquidation of Banca Veneto and Banca Popolare di Vicenza and the involvement Banca Intesa  have not been made public. We know from the press that Banca Intesa has offered a symbolic sum (1 euro) to acquire the porfolio of (relatively low risk) asset and liabilities which do not include Non Performing Loans nor junior bonds, in a move that would not affect it’s capital nor dividend. This raises a number of questions that the Italian government, the ECB and the other involved EU supervision authorities should answer: what is the official estimate of the difference between the market and the book value of the two banks’ Non Performing Loans , a gap that will be presumably footed by tax-payers (estimates in the press range from 5 to 10 billions)? what is the official estimate of the market value of the (low-quality) asset and liabilities that will be eventually transferred to a bad bank for the government to recover part of the losses? what is the official estimate of the market value of the (high-quality) asset and liabilities that will be eventually transferred to Banca Intesa?  Does this estimate exceeds one euro, and , if so, what justifies the government subsidy to a private bank? what is the estimate of the private sector’s contribution in terms of bailed-in asset (junior bonds, shares and so on)?...

Read More

Proportional Rules and Troika Risk

In a December 2016 post I discussed the likelihood of Italy falling back into chaotic political instability, capital flights, rising bond spreads and bank runs (TROIKA scenario). I argued that much would depend how the Gentiloni government would manage the hot potato of the new electoral rules, the troika scenario being more likely if  a proportional system would be chosen.  My initial estimate of the  troika probability was quite high, above 50 percent. In a second post  in Febrary 2017 I argued that the Constitutional Referendum and the ensuing split of the Democratic Party would further boost the Troika scenario (to 63%...

Read More



Paolo Manasse

Professor of Economics
Economics Department, University of Bologna

Download Resume or Read my Resume

Recent Tweets

Share This