FOR years the Italian banking system has been kept on a life-support system of government bailouts as it sinks under the weight of astronomical debt.
Loans made in the period when the banks could generate huge wealth on paper, by lending money they simply did not possess, have been transformed into ‘non-performing loans’, that is debt they have no chance of recovering.
The scale of the debt facing the major Italian banks is staggering. Monte dei Paschi di Siena, Italy’s third largest bank, lost 90% of its value this year alone. According to official figures Italian banks have bad debts or non-performing loans of £307 billion and are on the verge of defaulting.
17% of bank loans in Italy have gone bad. To put this in perspective, at the time of the 2008 bank collapse in the US only 5% of loans became non-performing, and this was enough to tip the capitalist financial world into its worst crisis ever in history.
What has stumped economic commentators is that Italian banks, unlike their counterparts in other Western countries, did not engage in a reckless binge of lending to homeowners who couldn’t afford mortgage repayments. Instead they loaned predominantly to industry and Italian households.
What has hit these banks is not the reckless lending that can be somehow tamed – as the apologists for the banks claim – but is directly connected to the collapse of the Italian economy, a collapse that is mirrored across Europe, America and the entire capitalist world.
A desperate Italian government has requested permission for the EU to pump 40 billion euros of bail-out money in an attempt to stop the immediate collapse. This would require the EU to break its recently imposed ‘bail-in’ policy under which governments are forbidden to use tax-payers money to prop up bankrupt banks.
Bail-in was insisted upon mainly by the German government in an attempt to pursuade the working class of Europe that no longer would they be forced to accept austerity cuts in pay, jobs, pensions and welfare in order to pay for the bank debts.
This was, of course, after the big German banks had already had their debts paid for by transferring them to the EU which in turn screwed every penny owed out of the Greek, Portuguese and Irish working class.
Instead of the state stepping in, under bail-in the banks’ ‘stakeholders’ – shareholders, bondholders and depositors as well – would pay the price before the taxpayer. The brutal reality of this was brought home to Italian workers late last year when a pensioner committed suicide after losing his entire savings as a result of a bail-in of his bank.
Whether the working class pay for the crisis through austerity cuts under state bail-out or through having all the money they have in banks seized under the policy of bail-in, the bankers and the bourgeois politicians who serve them are determined that they, and not the bankers, will pay.
Making this collapse immediate and inevitable is the fact that not only Italian banks are going bust. The biggest European bank, and one of the largest in the world, Deutsche Bank, has been revealed to have hidden losses of £9.5 billion. Shares in Deutsche Bank fell by 50% this year and are trading at just 8% of the share price in May 2007 as the amount of debt emerged.
The immediate prospect is that, along with the Italian banks, the bankruptcy of Deutsche Bank will, in the words of one economic commentator, make the 2008 crisis ‘look like a picnic. . . that will set off the global insurrection against banker occupation.’
This poses before the working class the reality that the only way out of this crisis is through the overthrow of the rule of the bankers by putting an end to capitalism through the victory of the socialist revolution, that only a socialist planned economy where the banks are nationalised and under the control of the working class and working for the benefit of society not for the profit of a few can humanity advance.