This statement comes from the president of the Italian National Commission for Securities (Consob) Giuseppe Vegas, whose interview with La Reppublica appeared on Thursday. Here are some of his unnerving answers (our emphasis):
“Italian banks do have problem, one that should worry everyone. Our banking system, among its assets, has €160 billion in Italian government bonds, and €3 billion in government bonds of other Pigs. Apart from this, our banks hold ‘toxic’ securities (primarily sub-prime mortgage) equivalent to a share of 6.8% of the capital, against a European average of 65.3%. But now, according to the new asset assessment rules by EBA, we find ourselves in a paradox: our own sovereign bonds are considered ‘toxic‘, worse than the subprime are for foreign banks.
“The only thing I know is that the EBA criteria are objectively questionable. We are arguing with the Bank of Italy to solicit assistance and to induce a change of heart, even in the ESM. But it is not easy […] banks must strengthen their portfolio and recapitalise. They either go to the markets to look for money or sell assets. In both cases, the path is narrow: and what effect does all this have on a country that needs growth as much as bread?
“So far, with the existing rules, the ECB has done what it can. But it is evident that the purchase of government bonds of peripheral countries only on the secondary market is no longer sufficient. Just as the approach purely anti-inflationary of monetary policy is not enough. I understand that the Germans have the skeleton in the closet of Weimar, but now we need a quantum leap.
“The Fed and the Bank of England print money. The ECB can not do so. This disparity needs to be resolved. Therefore, either we change the role of the ECB, or we must accept the risk that the euro fails, and each country goes back to its currency.
“High Frequency Trading, exchanges of securities at high speed through the algorithms: an algorithm can be cracked or hacked. A market can be influenced too much by these uncontrolled variables. That’s why we asked the Italian Stock Exchange to impose at least a fee when you launch an order of a certain amount, and then don’t run it. Again, these are small corrections, which do not solve the problem, but that cannot be ignored. And I could say the same thing about the control of naked CDS trade, ie when you buy them without possession of the underlying bonds. In the new MiFID, this will be forbidden. It is already a step forward.”