Italy raises doubts over banking ‘breakthrough’ by Germany
Heavily indebted Italy on Thursday criticised Germany’s surprise ambition to deepen financial ties in the eurozone, fearing an effort by Berlin to impose unwanted reform on fragile Italian banks.
German Finance Minister Olaf Scholz on Wednesday reversed years of Berlin policy by backing the idea of a common European deposit insurance, a key plank of an EU banking union that has been long rejected by Germany.
But Scholz threw in a series of tough conditions, including putting an end to incentives that encourage eurozone banks to buy public debt from their national governments, a practice known as the “doom loop” that critics say has dangerously propped up Italy’s economy since the crisis.
“We do not think that this is a condition which is appropriate for the completion of banking union,” said Italian Finance Minister Roberto Gualtieri as he arrived for talks with his eurozone counterparts.
“Our positions are different, are far apart and we consider that this is a measure that would have negative impact,” Gualtieri added.
Scholz continued to defend his proposals on Thursday: “We have been talking for years about completing the banking union. Now we must act,” he said.
Other tough conditions set by Scholz are that nations should first write off bad debt, harmonise bankruptcy rules as well as coordinate taxation of multinational banks.
Germany’s sudden ambition came after discussions to set up a European Deposit Guarantee Scheme (EDIS) dragged on fruitlessly for years.
Northern nations like Germany have been reluctant to embrace the scheme, fearing that they would end up on the hook for less financially prudent neighbours.
Under the US-inspired system, European banks would be less under pressure in the event of a crisis since customers, insured not to lose their money, would not rush to withdraw all their savings.
European Commissioner Pierre Moscovici hailed Scholz’s “breakthrough” and the “change in mood music”.
“Since 2012, 2013, on the part of Germany, it wanted nothing to do with this,” he said.
But Eurogroup chief Mario Centeno warned that the discussion remained extremely politically sensitive and would take time.
“In the US they took close to 80 years and more than 150 proposals to Congress to finally get their deposit insurance scheme,” he said after talks with ministers.
“We still have some slack here,” he added.