ECB Declares War Against Italy; Demands More Blood from Population for Monte dei Paschi Bank
Dec. 27, 2016 (EIRNS)—The Italian financial daily Il Sole 24 Ore reported yesterday that the European Central Bank (ECB) sent a letter to the Monte dei Paschi (MPS) management, demanding a capital increase almost double that previously established. The letter was sent a few hours after MPS had requested authorization to join the Italian government "pre-emptive" bailout, or nationalization. The ECB is demanding a capital increase of €8.8 billion instead of the €5 billion previously established.
The shift is based on a new classification of MPS by the ECB, at the same rating as Greek banks during the Greek financial crisis.
The ECB demands that €4.5 billion be subscribed by the government, and €4.3 billion be collected through "burden sharing," i.e., bail-in of senior and subordinate bondholders. However, the government insists with the plan of refunding 100% to retail bondholders and imposing a 30% cut on institutional bondholders.
The ECB demand is like a declaration of war against a national decision which is defiant of European Union law. This comes from the same Mario Draghi who is ultimately responsible for the MPS bankruptcy by having authorized in 2008 a takeover which cost MPS €19 billion and which has been indicated by an investigation committee as the single major cause for MPS’s financial troubles. Draghi lied that the takeover costs would amount to 9 billion euros, well knowing that a Bank of Italy report one year earlier had provided the real figures.
Draghi also authorized a capital increase and the issuance of subordinate bonds to finance the acquisition, as well as derivative instruments which added more losses. Had MPS not jumped into that insane operation, the bank would be able to better cope with its commercial loan problem. With its latest move, the ECB has made the Italian €20 billion safety net even more insufficient for the entire banking system, but above all it has declared its intention to impose on Italy the same brutal treatment forced on Greece.