Italy appears to be using the chaos from the UK's vote to leave the European Union as a sort of modern Saturnalia, the annual carnival in Ancient Rome when rules and social norms were cast aside. It wants to pump money into its banks and ignore rules that came into force this year that require creditors of failing banks to be bailed in, according to Il Fatto Quotidiano.
It's easy to see the appeal of such a move. Italy's banks are saddled with over 300 billion euros of bad debts, which is a drag on growth. The rules against state aid forced banks to create a private sector bailout fund to rescue lenders, but this is small, and weakens the stronger banks. A mooted 40 billion euro bailout would help banks write down loans to be sold and lend again.
However desirable, it's not clear how that would square with European rules under the Bank Recovery and Resolution Directive, and competition rules requiring that banks receive state capital are restructured and creditors take losses before governments inject capital.
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Italy could instead use the Brexit vote to reform Europe's overly-rigid fiscal rules, which discourage investment. It could also pressure Germany to complete a half-baked banking union. Euro zone banks have transferred authority to the European Central Bank, but they have not obtained a common guarantee for deposits in return, because northern European countries fear the exposure of banks in places like Italy or Spain to their respective sovereigns.
Brexit may provide a remedy of sorts. It is likely to force the European Central Bank to buy sovereign debt for many years, which will in turn make it easier for banks to sell their sovereign bond holdings. Italy could also use the generalised chaos to bind Germany to a hard commitment for a deposit backstop. Unlike breaking the state-aid rules, that would show the euro zone is moving forward, not backwards.
