The Strategist

€ 2,2 Billion: The Bailout for Italian Banks

10/13/2015 - 15:12

Italian authorities are planning to carry out an urgent recapitalization of three small banks - Banca Marche, Banca Popolare dell'Etruria and Cassa di Risparmio di Ferrara - with the use of funds from a fund set up to guarantee the repayment of depositors.

Dawid Skalec
Dawid Skalec
According to "Reuters", Banca Marche, Banca Popolare dell'Etruria and Cassa di Risparmio di Ferrara are on the brink of collapse and in urgent need of an infusion of new liquidity in the amount of at least € 2,2 billion ($ 2.5 billion). Last week, the Bank of Italy has put the banks under external management after the audit revealed serious problems in their balance sheets.

The agency’s sources also note that for the recapitalization of banks the authorities are going to use a fund, which was created by Italian banks to guarantee repayment to investors. It has been noted that in the case of the use of the fund, it will result in financial losses for such large Italian banks like Intesa Sanpaolo and UniCredit.

These banks top the list of major donors to the Deposit Guarantee Fund, the use of the fund will cost about € 200 million to each of them.

It should be noted that the Italian economy has lingered in a recession within three years, but September this year, the government raised its forecast for GDP growth in 2015 and 2016.

According to the draft budget for next year, GDP growth will be 0.9% this year (April-expected 0.7%) and 1.6% (1.4%) in 2016.

Currently, the economy of Italy, supported by stimulus measures of the European Central Bank, decline in oil prices and the weakening of the euro, yet the influence of these factors may prove to be short-lived.

According to the Italian Prime Minister Matteo Renzi, the reforms, carried out in the labor market and in the judiciary, are now beginning to bear fruit. "We expect tax remissions for individuals and reduction in expenditure at national level," - stressed Renzi.

Besides, the government expects to finish the year with a budget deficit of 2.6% of GDP, and 2.2% of GDP has already been planned for the next year, what is higher than the previously expected 1.8%.

Italy's debt, the largest in the euro zone after Greece, accounts 132.8% by the end of 2015.