By Nick O’Connor – Capital & Conflict (Great Britain) –
After an initial bump, markets took the news of the Italian referendum vote in their stride. Does that mean Italy and Europe are out of the woods?
That’s what I asked Tim Price. The answer was… probably not.
The reason why is simple. There are genuinely worrying problems within the Italian banking system that won’t just go away. Political instability threatens to expose them and perhaps even make them worse. But ultimately it comes down to debt.
Tim’s been warning of this all year, so you’ll probably be familiar with the argument now. The Italian banking system is wracked with non-performing loans: loans that are likely never going to be paid back. The number ratio of non-performing loans in Italian banks is heading towards 20%. In Britain it’s 1.4%. The global average is 4.9%. It’s a mess.
Against that backdrop there are more acute problems. The oldest bank in the world, Monte dei Paschi di Siena, needs a bailout. The non-performing loans figure suggests the entire system might. It’s much harder to negotiate a bailout (or a bail-in) when your government is leaderless.
That’s the backdrop. So what is Tim looking at now for signs the situation in Italy is deteriorating? Last night he pinpointed four things. I’ll explain them in turn afterwards.