Bloomberg/Ross Larsen, Guy Johnson & Caroline Hyde/7-6-2016
“Italy’s banking crisis could spread to the rest of Europe, and rules limiting state aid to lenders should be reconsidered to prevent greater upheaval, Societe Generale SA Chairman Lorenzo Bini Smaghi said.”
MK note: I first posted a heads-up on a potential for something coming out of left field from Italy’s banking sector back in April. Things apparently are now heating up in the wake of Brexit. Italian banks hold $389 billion in non-performing loans, according to this article, a full one-third of the eurozone’s total. Brexit has worsened an already dangerous situation in that it solidifies the negative rate environment which is destabilizing the commercial banks, not just in Europe but around the world. Contagion is possible, and that is what worries Smaghi.
SocGen’s chairman is basically calling for a bailout which tells you Europe might be deeper in the crisis than anyone thought. He appears to be speaking from direct experience, i.e., pressure on SocGen itself, and I don’t think he would be going public unless he felt it necessary. Germany is opposed to bailouts with Merkel recently saying something along the lines that the nation states have already agreed on a course of action (essentially bail-ins).
The rate on sovereign bonds globally, as you are probably already aware, is plummeting in the general flight to safety. Gold and silver are the other beneficiaries in what is turning out to be a wild run for cover.
From the April post –
“Italy looks to be on a road very much like the one traversed by Greece – only on a significantly larger scale. With a kind of paralysis infecting the bail-out apparatus and bail-ins as of January now in the tool box for European central bankers, Italian depositors who had the wisdom and foresight to stash a little gold and silver might end up being very glad they did.”
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