Friday, 2 June 2017

Monte dei Paschi di Siena and Too Big To Fail: How Economic Fears Have Given Way to Political Fears, Yet Have The Same Roots

Today’s post looks at the news that the Italian Bank Monte dei Paschi di Siena (hereafter ‘BMPS’), the oldest bank in the world, is on the verge of being bailed out by Italian authorities, with the confirmation of the E.U., to the tune of €6.5 billion. Whilst the post will discuss the developments in this case, an interesting ‘rationale’ will be discussed, because as we shall see the fear-mongering developed after the financial crisis i.e. economic collapse, has now given way to fear-mongering of a political nature. The post will look at how these elements represent the exact same thing: the preservation of the roles of private business and a subservient public.

Monte dei Paschi di Siena, the world’s oldest bank and a staple within Italian and European finance, has been experiencing a number of difficulties ever since the Financial Crisis, with the bank reporting consistent losses and job cuts in a bid to turn its future around. However, as a result of its botched purchase of Antonveneta in 2008, the bank was consistently behind on its targets, and later tapped its own customers for €2 billion via the sale of bonds to its customers, employees, and savers. The purchase subsequently weakened the bank as the environment around it crumbled post-2007, which via a hard road has led to calls for the bank to ‘bailed-out’ by the Italian authorities which, this week, moved one step closer. Last year BMPS tried and failed to raise €5 billion via the capital markets, so in the past few days the Italian authorities and the European authorities have agreed upon a framework that will see the bank injected with over €6 billion, whilst there are a number of restructuring conditions attached to the deal. Ultimately, the move appears to represent the general decline of Italian financial institutions, with a number of other banks requiring assistance which one media outlet suggests will run closer to €20 billion in state-aid once all is said and done. Yet, a brief and almost universally accepted comment in The New York Times raises an issue that needs addressing. In discussing the potential effects of the deterioration of Italian financial institutions, the author of the piece states ‘calls for bailouts have been growing louder over worries that legions of angry middle-class savers… would destabilise Italy’s already wobbly government and nourish far-right parties’; this terminology, with regards to ‘effect’, is very important to understand.

Ever since the Financial Crisis began to affect society, the levels of fear-mongering on the back of that development has been near consistent. Whether it is a ‘death spiral’ for a given economy, or a ‘fiscal cliff’, the development of the ‘other’ – in terms of something we all must rally against - as economic collapse has been almost universal across all sectors of the media and politics. Yet, that discourse is transforming, so that the threat that keeps ‘us’ all together is now the politics of the far-right, or ‘alt-right’ as the new incarnations label themselves. Whilst this is an issue across many societies, it is feared instinctively on the European continent given its history with the effects of such ideologies. It is for this reason that the importance of bailing out financial institutions, in order to preserve some incarnation of ‘balance’, is of the utmost concern for the E.U., as the bloc has recently experienced a wave of resurgent nationalistic politicians who represent these same ideologies. From Jorg Haider’s Austrian Freedom Party at the turn of the century, to the Netherland’s recent version Geert Wilders and, lest we forget, the Front National’s Marine Le Pen, the E.U. is seemingly constantly in a battle to protect itself from the destructive far-right (Britain represents its only real loss in that particular battle). Yet, whilst some talk of the re-branding of the far-right as being the reason for the renewed sense of urgency from the establishment, may it actually be the case that the rise in nationalism is simply the next in a long line of ‘bogeymen’ that maintain order?

The E.U. and its supporters are quick to play up the fear of the far-right encroaching upon democracy, and the nationalistic and protectionist sentiments being advanced every day in the U.S. and the U.K., two leading countries led by the far-right, do contribute to that rhetoric. However, if we look more closely, Le Pen was destroyed in the recent French Elections, Geert Wilders was embarrassed in the Dutch elections, and the far-right in Germany have recently recorded their lowest rating in national polls since the rise of the far-right in the U.S., despite a surge of media fear-mongering regarding their challenge to Angela Merkel. So, in reality, the threat of the far-right is not that much greater than any other recent time, yet it is being promoted as such, with key financial decisions that cost the public being taken on that foundation. The leading management at BMPS should not have their salaries capped, but should be investigated for failing their shareholders and the Italian national interest – short-sightedness and greed must not be masked by the fear of a ‘bogeyman’. The development of the far-right ‘bogeyman’ represents the perfect antidote to the public’s backlash over exorbitant greed in the financial sector, but it is always liable to change. In the U.K., the new ‘bogeyman’ is Brexit, and in the U.S. the ‘bogeyman’ is political instability created by Donald Trump; it seems that the leaders of modern society have deemed it necessary to create ideological slight-of-hands in order to function – it is important that we continue to ask why this is.

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