This confronts the Renzi government with a dilemma. The new bank regulations passed by the EU in response to the 2008 crisis forbid the use of state funds to rescue banks. Before public bailout measures can be taken, creditors and shareholders must be held liable for the bank’s losses and bear the cost of at least 8 percent of the restructuring expenses.

Already late last year, when four smaller crisis-ridden banks were dismantled, 12,500 small investors, including many pensioners taken completely unawares, lost their savings. On the advice of the bank, they had placed their savings in so-called sub-prime investments, which turned out to be junk assets. Their dramatic fate, which included the suicide of a pensioner who lost everything, provoked a wave of protest throughout the country.

In addition, it is feared that breaking up MPS, which sold such assets to 60,000 customers, could provoke a run on all Italian banks and unleash a chain reaction throughout Europe. Other Italian banks, including Banka Popolare di Vicenza and the savings bank group Carige in Genoa have problems similar to those of MPS, according to Italian media reports.

After the International Monetary Fund sharply revised downwards its growth prediction for Italy, the euro zone’s third largest economy, a study by Barclays Bank estimated the situation facing the financial sector in almost all countries as dramatic. David Folkerts-Landau, chief economist at Deutsche Bank, stated in the Welt am Sonntag that €150 billion was required to save Europe’s banks.

Germany’s attempt to impose its economic dictates is breaking the EU apart. Berlin’s response is to place greater emphasis on militarism at home and abroad.

EU shaken by Italian banking crisis

http://www.wsws.org/en/articles/2016.../ital-j14.html