Deal is met with shrug, but EU rules sidestepped
How the wheel turns. Several years ago the collapse of two banks, even mid-size institutions like Veneto Banca and Popolare di Vicenza, would have triggered shock waves throughout stock markets.
Instead, investors delivered a collective shrug at news of the €17bn windup operation. The Euro Stoxx 600 index gained 1.6pc in mid-day trading before fizzling out to end 0.4pc higher. The market reaction largely reflected market relief at the Italian Government's decision to finally grapple with a problem that has festered for years. But this episode has the capacity to leave a nasty legacy. As Citi economists, led by Guillaume Menuet, pointed out in a note to clients, "this was the first time the EU banking resolution rules would have been applied and they were not".
Under the new 'bail-in' rules, taxpayers were supposed to be shielded from losses, with private investors made to swallow the pain before public money was deployed. Italy's government argued the Veneto region, an affluent area in the north east of the country, would suffer if the bail-in rules were applied. The ECB judged the banks too small to merit concerns about competitiveness.
Inevitably, however, the decision has drawn accusations of double-standards. Alan McQuaid, chief economist at Merrion Capital, pointed out that it clearly indicates there is one rule for the big guys and another for the little players. KBC's economist in Dublin, Austin Hughes, claimed it reflected Mario Draghi's "whatever it takes" maxim that has buttressed markets since 2012 and shows the ECB will not apply rules if it its measures contain "contagion".
The question now is whether this episode deals a potentially fatal blow to any hopes for a united European banking project.