On Jan. 30, Bank of Italy Governor Ignazio Visco called for a review of European Union regulations that require investors take losses before a state can assist a bank – in other words, that a “bail-in” must precede a bailout. His statement came a mere three days after yearlong negotiations between Italy and the European Commission finally yielded a deal designed to help Italy offload bad debt from banks’ balance sheets. The statement also came the day after German Chancellor Angela Merkel and Italian Prime Minister Matteo Renzi met in Germany and appeared, at least publicly, to have resolved relations that had become increasingly sour. Public events aside, Germany and Italy simply have fundamentally different interests that a meeting and handshake between Merkel and Renzi cannot overcome.
As we have discussed in recent weeks, Italy has a serious problem with non-performing loans, which amount to roughly 17 percent of Italy’s GDP. The European Union has finally realized that