More paper money, the crisis of Italian banks was the main reason for England to leave the Eurozone.
European Commission Authorized Italian Government to Support Banks
Program approved under the bloc’s ‘extraordinary crisis rules for state aid’
Several other European countries with weak financial systems already have similar support systems in place. ENLARGE
Several other European countries with weak financial systems already have similar support systems in place. PHOTO: CARL COUR/GETTY IMAGES
By VALENTINA POP and GABRIELE STEINHAUSER in Brussels and GIOVANNI LEGORANO in Milan
Updated June 30, 2016 12:56 p.m. ET
BRUSSELS—The European Commission on Sunday authorized Italy to use government guarantees to provide liquidity support to its banks, a spokeswoman said, disclosing the first intervention by a European Union government into its banking system following the U.K. vote to leave the EU.
The June 23 referendum sparked a steep sell-off in banking stocks followed by intense volatility this week. That has exacerbated already existing troubles in the Italian banking sector, which is suffering from high levels of bad loans and poor profitability amid super-low interest rates.
The Italian liquidity-support program includes up to EUR150 billion in government guarantees, said an EU official. Several other European countries with weak financial systems already have similar support systems in place.
The commission spokeswoman declined to comment on the amount of guarantees that were authorized, but said that the budget requested by the Italian government had been found to be proportionate. The Italian economy ministry declined to comment.
Only solvent banks would qualify for the liquidity support, which will run until the end of the year. “There is no expectation that the need to use this scheme should arise,” the commission spokeswoman said.
The guarantees, which could be used to guarantee debt issued by banks, are separate from an Italian government blueprint to recapitalize weak lenders. Italian officials have said that the government hopes to inject up to EUR40 billion in fresh capital into domestic banks.
In contrast to liquidity support, which the commission can approve during times of market turmoil, capital injections fall under the EU’s new strict rules on bank bailouts. Those rules would require private investors, including bondholders, in the bailed-out bank to take losses.
“As this decision and other precedents demonstrate there are a number of solutions that can be put in place in full compliance with EU rules to address market turbulence,” the commission spokeswoman said. She said the support program was approved under the commission’s “extraordinary crisis rules for state aid to banks,” and that guarantee programs such as the one for Italy were generally approved for six months so they could be adjusted for new developments. http://www.wsj.com/articles/european-commission-authorized-italian-government-to-support-banks-1467297630?mod=wsj_nview_latest