Leader Luigi di Maio says bondholders should not face losses. The leader of the populist Five Star Movement in the Italian parliament has called on Brussels to allow public money to be pumped into the country’s struggling banks without any hit to private investors, saying Europe’s “economic future” was on the line.
Luigi di Maio, who is emerging as the main political rival to Matteo Renzi, the centre-left prime minister, said a so-called bail-in — which is a prerequisite for government support for banks under new EU rules with scant exceptions — should be avoided at all costs.
He said bondholders, whether private or institutional investors, should not be forced into a bail-in that could lead to big losses because it would create even greater pain.
“A bail-in now cannot be done. It would be the final blow to savers,” Mr Di Maio said. “I want to say to those leading the negotiations that there’s not just Matteo Renzi’s political future at stake, there’s also the economic future of the EU.”
On one hand, Mr Di Maio’s comments appear to support Mr Renzi, who has been in intense talks with Brussels to inject public money into its struggling banking sector, particularly institutions such as Monte dei Paschi di Siena (MPS) which are most saddled with non-performing loans and in desperate need of new capital.
Mr Renzi has argued for the most lenient interpretation possible, or even a sidestep, of EU state aid rules designed to prevent taxpayers from shouldering the burden of financial sector bailouts. But Mr Di Maio’s resistance to a bail-in will raise pressure on the prime minister not to cave in to Brussels.
The Five Star leader said any hit to private investors, particularly retail depositors and holders of junior debt in struggling banks, would create problems because “citizens would be paying for mistakes they did not make”.
But he also said institutions, such as fund managers, should be spared, arguing that to do otherwise would cause “even greater problem in terms of foreign investment, and also Italian investments which would move abroad”.
The Five Star Movement has emerged as the main political threat to Mr Renzi in recent months. It been gaining in the polls to the point that it is now neck-and-neck, or even slightly ahead of the prime minister’s Democratic party. It had also taken control of local governments in Rome and Turin, the first and fourth largest cities, in recent mayoral elections.
Mr Di Maio, a 30-year old Neapolitan, is considered the most likely prime minister should the Five Star Movement gain power in the near future.
Italian officials have stepped up efforts to find a “market solution” to the banking problem, with the aim of avoiding a public intervention that could fall foul of Brussels. Even if they a mechanism is found, there are no guarantees it would offer a lasting solution.
“If there is no public intervention, that’s another story. But leaving it as a private bank with the same governance that destroyed it, means doing what we did in the past,” he says, referring to the €4bn in funds Italy lent MPS in 2012. “That did not resolve the problem.”
