Italy in new gov­ern­ment endgame, bank fears rise

Kuwait Times - - INTERNATIONAL -

ROME: Talks on cre­at­ing a new Ital­ian gov­ern­ment en­tered a de­ci­sive phase yes­ter­day as fears mounted that any new pre­mier will have to han­dle a po­lit­i­cally toxic bank­ing cri­sis. Pres­i­dent Ser­gio Mattarella is try­ing to bro­ker a deal among po­lit­i­cal par­ties on the cre­ation of a care­taker ad­min­is­tra­tion to guide the coun­try to elec­tions.

A na­tion­wide vote is due by early 2018 but could take place up to a year ear­lier if there is no deal. For­eign Min­is­ter Paolo Gen­tiloni emerged as the pun­dits’ fa­vorite to suc­ceed Mat­teo Renzi amid swirling spec­u­la­tion that the ougo­ing prime min­is­ter’s re-ap­point­ment was also an op­tion. Renzi re­signed af­ter a crush­ing de­feat in last week­end’s ref­er­en­dum on con­sti­tu­tional re­form, plung­ing the coun­try into a po­lit­i­cal cri­sis just as the long-an­tic­i­pated bank­ing crunch landed in the fi­nance min­istry’s lap.

Mattarella has spent the last two days talk­ing mainly to fringe par­ties without suf­fi­cient num­bers in par­lia­ment to sway the de­ci­sions he has to make. The real work be­gan yes­ter­day with talks with ju­nior coali­tion party the New Cen­tre Right (NCD) to be fol­lowed by meet­ings with of­fi­cials of the pop­ulist Five Star Move­ment, Sil­vio Ber­lus­coni’s Forza Italia and Renzi’s Demo­cratic Party. In­te­rior Min­is­ter An­gelino Al­fano, the NCD’s leader, emerged to say there was no need to rush to elec­tions.

“The gov­ern­ment... is not like a yo­ghurt. It does not have a ‘best-be­fore’ date,” he said sar­don­ically. The need for a new gov­ern­ment has be­come press­ing fol­low­ing the Euro­pean Cen­tral Bank’s de­ci­sion to re­ject Rome’s re­quest for more time to per­suade in­vestors to back a five-bil­lion-euro pri­vate bailout for trou­bled bank Monte dei Paschi di Siena (BMPS). The bank, iden­ti­fied as be­ing vul­ner­a­ble to fail­ure in stress tests last year, had asked for an ex­tra five weeks to raise the funds it needs to avoid a gov­ern­ment bailout un­der which, un­der EU rules, debt hold­ers will have to share some of the losses.

Renzi come­back op­posed

BMPS shares slumped more than 10 per­cent on Fri­day, tak­ing this year’s slide in value to 85 per­cent. The bank’s board was hold­ing cri­sis talks over the week­end. Sav­ing the world’s old­est bank will be po­lit­i­cally dif­fi­cult for who­ever over­sees the op­er­a­tion. Most an­a­lysts see it and other Ital­ian banks as need­ing rad­i­cal re­struc­tur­ing in­volv­ing in­evitable re­dun­dan­cies. But there are many small in­vestors who have BMPS bonds, and their sav­ings will be hit in any rescue deal.

Im­pos­ing losses at smaller banks last year hit Renzi’s stand­ing hard and was linked to at least one suicide. The ECB ap­pears to have judged that de­lay­ing a so­lu­tion will only risk a wider cri­sis in the Ital­ian bank­ing sec­tor that could have dam­ag­ing im­pli­ca­tions for the rest of the eu­ro­zone. Italy’s big­gest bank, UniCredit, mean­while is plan­ning a ma­jor cap­i­tal-rais­ing op­er­a­tion of its own which may have to be repriced, de­layed or pulled as a re­sult of the cur­rent un­cer­tainty.

Among those who vis­ited Mattarella yes­ter­day morn­ing was Ar­turo Scotto, a law­maker with the Left Ecol­ogy party (SEL), who warned that any at­tempt to re­in­state Renzi would be greeted with fury. “It would be a provo­ca­tion to vot­ers who not only re­jected his re­forms but also de­liv­ered a damn­ing judg­ment on his so­cial, po­lit­i­cal and en­vi­ron­men­tal poli­cies,” Scotto said.

Vet­eran Fi­nance Min­is­ter Pier Carlo Padoan, Renzi ally Graziano Del­rio, and for­mer anti-mafia pros­e­cu­tor Pi­etro Grasso, are also be­ing touted as pos­si­ble new pre­miers. Renzi is re­port­edly lob­by­ing hard to keep out Cul­ture Dario Frances­chini, who is seen as a po­ten­tial ri­val to the out­go­ing PM for the lead­er­ship of the Demo­cratic Party, which re­mains the coun­try’s most pop­u­lar po­lit­i­cal force ahead of the fast-ris­ing Five Star.

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