On the question of immigration, we are witnessing more and more divide within the European Union, along with virulent stances at times (to wit: the exchange of “niceties” between Macron and Salvini) or the refusal by the Visegrad group (Poland, Hungary, Czech Republic, Slovakia) to attend the immigration summit in Brussels on June 24. Different points of view are frontally opposed and enmity is growing rapidly.
One cannot keep, while witnessing all this confusion and frustration, from imagining what it would be like in case of a banking and financial crisis. This scenario has to be taken into account now. While there is no direct relation between a migrant crisis and an eventual banking crisis, of course, the antagonisms expressed in the former could find their way into the latter. To the point, some leaders are starting to create some links between immigration and other subjects that, a priori, have nothing to do with one another: European Commissioner Pierre Moscovici has suggested that European funds – that benefit newest EU members – be reduced if those countries refuse to accept migrants. What’s the connexion? Will those countries receive less help if a banking crisis occurs?
But the main problem remains Italy, of course, in the midst of the migrant crisis and its banking problems... We know that the Italian banking sector is ailing, since 11.1% of the loans are non-performing ones (NPLs) – a rate that clearly puts at risk the transalpine financial system, being surpassed only by Portugal (15.2%), Cyprus (38.9%) and Greece (44.9%). Let’s open a parenthesis here: this number, by the way, shows that Greece is in total bankruptcy, contrary to what is being spread around. “The Greek crisis is about to end”, Pierre Moscovici was saying on June 21... what a joke! In any case, France and Germany have agreed to propose limiting NPLs to a maximum of 5% of all loans, according to La Tribune. Is this a way to put pressure on Italy?
There is another element to the problem: the ECB is planning to stop its quantitative easing (QE) at the end of 2018. The asset purchasing programme will continue to the tune of €30 billion per month until September, 2018, and will then be reduced to €15 billion per month at the end of December, and then stopped. However, this asset purchasing, mainly sovereign bonds, largely benefits Italy, because it can have reasonable rates on its debt. But with the end of QE, rates – which are already frothy with the political uncertainty – may rise dangerously. A dual crisis of public finances and the banking system in Italy would put the whole of the Euro zone in jeopardy. If the European countries react by shooting themselves in the foot, as they’re doing with the migrants, it’s not going to turn out well. The scenario of an exploding euro would suddenly come back at the forefront.
The European Union is breaking apart as its banking sector is ailing (in Italy, Greece and Cyprus, but let’s not forget Deutsche Bank), and savers in Europe have a lot to worry about... This brings substance to our scenario of a financial crisis that would stem from – for a change – not from the United States, but from Europe.
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Philippe Herlin Finance Researcher / Doctor in Economics
Philippe Herlin is a researcher in finance and a doctor in economics of the Conservatoire National des Arts et Métiers in Paris. A proponent of extreme-risk thinkers like Benoît Mandelbrot and Nassim Taleb, and of the Austrian School of Economics, he will be bringing his own views on the actual crisis, the Eurozone, the public debts and the banking system. Having written a book on gold that has become a reference (L’or, un placement d’avenir, Eyrolles 2012), he wishes to see gold play a growing role in our economies, all the way to its full re-monetization.