German MEP blasts Italian €17bn bank rescue – business live

German conservative MEP Markus Ferber (EPP) is extremely unhappy that Italian taxpayers are paying the cost of winding down the two Veneto lenders.

In a strongly worded statement, Ferber argues that the central principle of European banking regulation – that bondholders shoulder losses if a bank fails – has been undermined.

He says:

“With this decision, the European Commission accompanies the Banking Union to its deathbed. The promise that the tax payer will not stand in to rescue failing banks anymore is broken for good.

I am very disappointed that the commission has approved this course of action. By doing so the Commission has massively undermined the credibility of the Banking Union. If the common set of rules governing banking resolution is so blatantly ignored, there is no point in negotiating any further on a common deposit insurance scheme.

The precondition for a working Banking Union is a common understanding of its rules. If such a basic common understanding is lacking, there is no point in further deepening the Banking Union and mutualising risk.”

Top German economist Isabel Schnabel is also unhappy that senior creditors are being spared any losses:

The bad news is that thousands of jobs are likely to be lost across Banca Popolare di Vicenza and Veneto Banca, now they are part of larger rival Intesa.

Reuters has the details:

Intesa Sanpaolo said on Monday its planned acquisition of the good assets of Banca Popolare di Vicenza and Veneto Banca could lead to the closure of around 600 branches and the departure, on a voluntary basis, of around 3,900 staff.

Italy began winding up the two failed regional banks on Sunday in a deal that could cost the state up to 17 billion euros ($19 billion) and will leave the lenders’ good assets in the hands of Intesa, the nation’s biggest retail bank.

Rome spent the weekend drafting an emergency decree to liquidate the two banks, which collapsed after years of mismanagement and poor lending. The decree will have to be voted into law by parliament within 60 days.

Overnight, the European Commission approved the €17bn Veneto bank rescue – even though it appears to breach the principle that taxpayers shouldn’t rescue failing lenders.

Margrethe Vestager, EU competition commissioner, said:

“Italy considers that state aid is necessary to avoid an economic disturbance in the Veneto region.”

Many Italian bank bonds are owned by small retail investors. The Italian government has concluded that it it better to use state funds for this bailout, rather than inflict losses on ordinary families in the Veneto region.

Robin Bew of the Economist Intelligence Unit says Rome has performed some impressive “legal gymnastics” to get the deal through:

But could the deal undermine the whole principle of European banking union, and the idea that bondholders stump up when things go wrong?

The Financial Times says the deal could be a special case….

The drawn-out handling of the Veneto crisis has wider implications for Europe’s banking union, which aims to integrate oversight of eurozone lenders partly based on the assumption that private creditors would cover bank failure costs, rather than taxpayers.

The Italian state intervention to protect senior bondholders and big depositors runs counter to that principle but has been allowed because the banks’ liquidation means there are no competition issues.

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Today we’ll be watching Italy, after the Rome government scrambled to wind down two regional lenders in an attempt to prevent a bank run.

Last night, the Italian government agreed a deal in which the good assets of Veneto Banca and Banca Popolare di Vicenza will be acquired by Italy’s biggest retail bank, Intesa Sanpaolo.

Rome acted after the European Central Bank declared that the two banks were “failing or likely to fail”, rattling confidence in the Italian banking sector.

But the deal comes with a cost – Rome is handing Intesa €5bn to make the deal fly, and also providing €12bn of state guarantees to cover potential losses on the toxic assets and bad debts left behind.

The size of the rescue package has stunned some analysts, especially as it doesn’t obey the principle that bondholders, not taxpayers, are meant to take the hit when a bank fails.

Economy Minister Pier Carlo Padoan defended the deal last night, telling reporters that:

“Those who criticise us should say what a better alternative would have been. I can’t see it.”

The deal means that branches should open as usual this morning. And with Intesa now in control, the Italian government will be hoping to avoid a bank run today.

Here’s the story:

Also coming up today:

The TUC are holding a conference into insecure work in London today, in an attempt to improve the conditions and pay of some of Britain’s most downtrodden workers.

My colleague Katie Allen has interviewed TUC general secretary Frances O’Grady about this issue, and heard that the UK labour market must be improved.

O’Grady told us:

“There are people across the spectrum who are pretty outraged at what’s going on in 21st-century Britain. But nothing’s happened. We had the prime minister on the steps of Downing Street, we’ve had promise after promise, and we’ve had no action. So I think patience is wearing thin and I think it’s important that politicians do listen – but more importantly that they act. And there is no reason for delay. How much more evidence do people need?”

The TUC wants zero-hours contracts banned and for everyone on regular hours to have a right to a written contract guaranteeing their normal working hours. It wants an end to bogus self-employment and believes the law should change to give people a default right to qualify for all employment rights, unless the employer can demonstrate they are genuinely self-employed.

Here’s the full story:

We’ll also be watching out for a new survey of German business confidence this morning, and US manufacturing orders numbers after lunchtime.

The agenda:

• All day: TUC conference on insecure work
• 9am BST: German IFO business climate index
• 1.30pm BST: US durable goods orders