Italian bank woes 'not acute', says Eurogroup chief

Eurogroup head Jeroen Dijsselbloem on Monday said there was still time to solve the crisis affecting banks in Italy that is raising fears of new dangers to the eurozone economy. "It is not an acute crisis so that also gives us some time to sort these things out," said Dijsselbloem, who leads the group of 19 finance ministers from EU countries that use the euro.
Fears are rife on the financial markets that Italy could cause a return of the eurozone debt crisis if it does not address the 360 billion euros ($398 billion) in bad debt sitting in its national banks. Markets have turned sour on several Italian banks, most notably Italy's number-three lender and the world's oldest bank, Banca Monte Paschi.
The bad debt predicament poses political as well as economic difficulties for Prime Minister Matteo Renzi, who must obey new eurozone rules which limit the bailing out of banks through public money unless investors are required to bear part of the burden. "The rules... are clear and they are strict," Dijsselbloem, who is also Dutch finance minister, told reporters. "They make it very clear on when there needs to be a bail-in and who needs to be bailed in and in what order," he said, using the technical term for those who will incur losses if a bank in the eurozone should fail.
But, he added, these problems need to be addressed "gradually". Italian Finance minister Pier Carlo Padoan insisted savers in Italy "will be protected by the Italian government." Rome "is in the process of putting in place precautionary measures that will only be used if necessary," Padoan said. The Italian government, desperate to avoid a public backlash which could also handicap a key referendum on constitutional reforms later this year on which Renzi's political fate hinges, is extremely wary of angering the country's army of small investors.
Given the ultra-low interest rates prevalent in the eurozone thanks to the European Central Bank's efforts to support growth, many investors in Italy have bought bonds issued by banks that would be caught in a bail-in. But the eurozone's most influential finance minister warned that the rules could not be broken. "The rules must stick, otherwise what is the use of giving ourselves rules?" asked German Finance Minister Wolfgang Schaeuble.