The MPS bailout and the future of EU banking

A window with the lettering of Monte dei Paschi di Siena bank
Founded in 1472, MPS is the oldest bank in the world. Italian politicians were loath to let it go bust, but European markets were prepared for it to fail (source: dpa)
  • Italy bailed out MPS, even though its failure did not present a systemic risk
  • The EU’s consent to the bailout shows a protectionist, anti-competitive outlook
  • In the future, EU bail-in rules are likely to be flouted again
  • More bailouts in Europe will further burdening budgets and taxpayers

After a botched attempt to persuade old and new investors to put more money into Monte dei Paschi di Siena (MPS), the European Union and the Italian authorities refused to let the bank go belly up and obtained EU permission for a partial bailout. It was the first large-scale attempt to apply the bail-in principle within the EU banking framework, and it failed.

The EU’s turnaround stems from two ideological biases: protectionism and hostility to free competition. The alleged threat of systemic risk is in fact a veneer and should not be taken seriously. Protectionism and anti-competitive attitudes are unlikely to go away anytime soon; they will shape the scenarios for European banking. The industry will not become more efficient and its failures will translate into even more public indebtedness.

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