December 2016

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Markets have treated this as an isolated problem, so far. Maybe it is, maybe it isn't..

While Monte dei Paschi is considered a small bank relative to multinational giants, the fallout from a bailout could have far reaching consequences for global investors. There are concerns that the jitters could spread to other Italian banks and that the €20 billion set aside by the government on Wednesday won’t be enough to prop up all of the struggling lenders. Ipek Ozkardeskaya, senior market analyst at London Capital Group, estimates Italian banks need €52 billion to be rescued.

5 things to know about Banca Monte dei Paschi di Siena’s crisis - MarketWatch

And there is something else to consider:

A taxpayer funded-bailout carries the risk of a political backlash that could empower the so-called euroskeptic and anti-establishment 5 Star Movement. With the risk of snap elections in Italy next year, voter anger could propel this populist party into the driver’s seat. That could mean “Quitaly” or “Brexit 2.0.” Additionally, a euroskeptic government in Italy could lead to a surge in bond yields, credit downgrades and added troubles for banks, analysts say.

5 things to know about Banca Monte dei Paschi di Siena’s crisis - MarketWatch

We wrote about this not long ago:

• Just like Brexit, the Italian constitutional referendum has been a non-event in the markets.
• Given the precarious state of Italian politics, of the Italian economy, it's public finances and especially it's banking situation, this might be somewhat surprising to some.
• But until no acute crisis develops the markets are likely to remain oblivious.

All Quiet On The Southern Front? | Seeking Alpha