World News Tomorrow – Italian Bank Crisis
In about a day time results of the Italy banks will be published. Already the Italian Prime Minister Matteo Renzi anticipates on poor results of those tests and has announced to recapitalize the banks with billions of Euros in order for the banks to keep performing their value to the Italian Economy.
According to a recent article in Bloomberg, 7 out of 10 banks in Italy show red flags according to the Texas Ratio’s, which is a measure to indicate the bank’s credit troubles. Once these figures rise above the 100% there is a definite need for a quick solution. Currently the Italian bank signals to have around € 400bn in bad loans.
One of the main topics for PM Matteo Renzi at this moment is to avoid rules from Brussels banning state aid. Matteo Renzi has declared seeking approval to use article 32 of the European Bank resolution and is confident their case is urgent enough to allow injection of capital into the banks if they fail the stress tests.
According to experts the failure to pass these test would immediately create an insolvency situation and a new banking crisis looming over Europe. It is unlikely that other Euro members will allow Italy to inject capital into the its own banks and it is more likely the injection will come from the ECB. The general sentiment here is that shareholders and creditors will be forced to take losses before the ECB will come to aid.
The bank problems in general keep piling up as the Brexit has serious consequence for the financial sector in London with its currently easy passport access to Europe. A benefit which they will most likely loose. Experts are hoping for a Brexit light-version in this respect with the aim to prevent a exodus of financial institutes to other countries that remain in the European Union.
The Brexit has consequences for other financial markets like in South Africa. Although Europe remains the biggest trade partner, this Brexit has surely consequences.
According to Kookie Kooyman, portfolio manager at Denker Capital,
“ Our government and Banks get a large part of the Offshore funding from London and this funding might not be available any more.” He says.
The uncertainty in South Africa over the outcome in renegotiating trade agreements presses on the south African already struggling economy and leads to anxiety. Especially if more countries in the EU will follow UK’s example.
Recent terror events in the EU are not stimulating people’s trust in the stability of Europe and more terrorist events will significantly effect the EU economy. Right wing political parties in France, Italy, Germany and the Netherlands are supportive of a “yes-no” referendum and are gaining more popularity over it.
It becomes clear that the economy of Europe and its influence due to the Brexit and Terrorism will have an effect on a global scale. The question is how much of that effect can and will Brussels mitigate? IS stability even an option in the light of current events or can we safely assume that Europe will find stability again soon?