As a fractured European Union struggles to prevent another key nation from leaving the alliance, the Italian government on Sunday tried to quiet financial tremors by contributing €5.2 billion to keep afloat two Veneto banks deemed insolvent or nearly so by the European Central Bank. Italy’s Premier Paolo Gentiloni acted swiftly after the ECB gave the banks the boot, hoping to calm jitters by presenting the issue as a vital link to the nation’s economic recovery. Gentiloni said in a statement that the “disorderly” failure of Manx Veneto Banca and Banca Popolare di Vicenza could stall economic recovery.
Economy minister seeks calm in bail out
Based in Veneto, an economically vital region of the country, clientele of the two failed banks are mostly small and medium-sized businesses of the type that sustain Italy’s ailing economy. The action comes two nights after the European Union severed operational ties with the two banks. Economy Minister Pier Carlo Padoan in a statement on Monday insisted that "there will be normal operations" when the two banks reopen their doors Monday, adding that some of the costs of the taxpayer-funded bailout may be recovered down the road.
Thousands of layoffs coming
With the European Central Bank no longer doing business with the aforementioned Italian banks, the government is hoping the more than €5 billion bailout will prime the financial pumps of lending, while assuring that small account holders and senior shareholders alike see their funds secured, at least for the time being.
The government’s transfer of money and resources means that Intesa Sanpaolo bank will take control of the troubled institutions, ensuring the elimination of duplicitous operations and leading to the loss of thousands of jobs in banking, finance and related businesses.
The ECB said on Friday that it would no longer fund the banks because of extraordinarily high levels of outstanding loans.
Intesa Sanpaolo's is expected to take control of "good" assets of the two banks and plot a a path to profitability. "All this is in full respect of EU rules," said Padoan.
The United Kingdom is currently in the midst of officially separating from the European Union and EU officials are concerned that another country might follow them out the door if struggling economies do not improve significantly. To that end, Italy’s leaders had to take action, essentially trading government funding and jobs for financial solvency.
