Banks in troubles

It is generally known that you can see a bottle of wine, that somebody drank a half of, as a bottle that is half empty or half full. It is only about the angle you look at it. The volume of the liquid is still the same. Financial markets are similar.

A news came that could be perceived both as a tragedy of the Italian economy or we can see it optimistically as a rescue of not only Italian but also European economy. The markets decided for that optimistic viewpoint. And that is why the stocks have been growing today. The Frankfurt stock exchange has been adding 0.6 %, the Paris one 1.0 % and the Milan one right away 1.3 %.

Markets have simply been thrilled about the news that the Italian government is going to pay 5.2 billion euros to the Intesa bank and provide a guarantee of another up to 12 billion euros for taking over the Popolare di Vicenza bank and Veneto Banca which bankrupted. The market sees it positively because the bank is going to take over only the good assets only for one euro. In the eyes of the investors, it is like it choses only the cherries from the sundae.

From the point of view of the entire banking sector, it is a good news. Italy has a giant amount of bad loans and now their big part is going to get outside of the banking sector. But everything has its price. The Italian government has been saving another bank not long ago and it poured in it 6.6 bn. euros. So it is cumulated 17.2 bn. That means almost 24 bn. euros in several weeks. By the end of the year – before this rescue – the Italian debt to GDP was 133 %.

So Italy is going to get indebted even more. I think that Italy is going to be a big problem for the Eurozone. Much bigger than Greece because it is a big country. Indebtedness of the South of Europe is not and won’t be solved just like that and the Northern part of Europe is going to pay it one day.