One of the many advantages of advising a large Italian company – apart from getting paid on time – is that every now and then, you get invited to symposiums in lovely parts of Europe’s most beautiful country. This year, the company – a proper manufacturing company that has specialised in design excellence, so that it can charge more than its peers and thrive – is having its shindig in the Italian Alps.

So yesterday, after a discussion on how the European economy is going to fare in the next few years, I decided to try this skiing lark. Needless to say, Paddy isn’t a natural on the slopes either athletically or aesthetically – but neither is the Mayor of London. One of the oddest meetings I have had in many years was sharing a gondola at 2,000 metres with Boris Johnson.

Sometimes you have got to love the English toffs. While the rest of the piste was head-to-toe in the newest, flashest gear (particularly the Russians, who could ‘out-bling’ any self-respecting rapper), yer man Johnson was in a huge old tweed overcoat, a woolly red hat and a pair of cords.

We chatted for a while and then met again in the mountain-top cafe. What interested me most was that the views on Europe of the classically eurosceptic Johnson were almost verbatim the views I had heard earlier that day delivered by profoundly pro-European Italian businesspeople.

There is a sense on all sides that the balance sheets of the European banking system are wrecked. Johnson, a clear supporter of the City of London, was in no way triumphalist about the difficulties that the European financial system faced; quite the contrary. He feared, as the Mayor of London, that the biggest threat to London was chaos in Europe because, as he pointed out, England is in Europe, whether semi-detached or not and whether the UK Independence Party likes it or not. He seemed to think that the political machinery could eventually crank up to address the issue of bankrupt banks, although he seemed pretty vague on how this might happen. Ever the politician.

As the upper-class Englishman in the hilarious red woolly hat and greatcoat bade me farewell and hurtled down the mountain, the contrast between his hopeful attitude and the pessimism of the Italian manufacturers couldn’t be starker.

The core of Europe’s economic problem is not manufacturing, but banking. The easiest way to explain what is happening is that bankrupt governments are guaranteeing bankrupt banks, which are in turn buying up the bonds of these bankrupt governments.

So let’s think about it for a second. The European governments – all running deficits – are using the European Central Bank (ECB), of which they are all exclusive shareholders, to buy the bonds of European banks, and the bankrupt banks are then using this money to buy the debt of the bankrupt governments that lent them the money in the first place.

While this scam is trumpeted as a success by some of our politicians, it is obvious that the bankers themselves don’t believe that this carry-on can go on indefinitely. How do you know that the bankers don’t believe this is sustainable? Well, just look at what they are doing, rather than what they are saying.

Banks here are so nervous about another big bank going under that they don’t trust each other enough to lend to each other. This is the financial proof of the economic pudding. Interbank lending has all but dried up in Europe. Instead of lending to each other, they are putting increasing amounts of your cash and that of other Europeans – close to €500 billion – on deposit at the ECB. So the European banks, the only vehicle the ECB has to finance the bankrupt European governments, are in turn lending money back to the ECB when the ECB wants them to do precisely the opposite – which is to lend the money to us, the citizens, to get the economy going.

Now consider that these banks are lending money to the ECB at just 0.25 per cent. This is below the rate of inflation, which is running across the eurozone at 2.8 per cent. This means that Europe’s big banks are actually willing to lose money rather than lend it into the system. They must calculate that now it is better to lose modest and quantifiable amounts of money on an ongoing basis than risk the whole lot in a ‘European Lehman’.

The likelihood of a European Lehman – or at least the fear of such an event happening on the continent – is probably more acute in Italy than anywhere else right now. A lot of the chat in Milan last week centred on Italy’s largest lender, UniCredit. It is an enormous bank and most of the manufacturers at last week’s symposium banked with it. This is why they were worried.

Most of these companies have been around for generations. They have in many cases survived two world wars, fascism, years of state corruption and they are still exporting and generating enormous profits. Yet the very bank into which they are depositing their cash can’t raise money.

Last Tuesday, in an effort to get more cash in, UniCredit priced a rights issue – an invitation to existing shareholders to buy new shares in a company – at a massive 43 per cent discount to its closing share price. Yes, you read right, a 43 per cent discount. This move sent shares tumbling 37 per cent in the last three days.

No one wants to touch it. We are not talking about some small-time mortgage outfit; we are discussing Italy’s largest bank, the main player in Europe’s largest bond market and the main bank in Europe’s third-largest economy.

As the snow comes down on the pretty alpine village of Champoluc and the light twinkled inside the cosy cafes, the risk of a massive European banking crisis this year seemed closer than ever. Not because this economist says so, but because a banking crisis is exactly what the behaviour of the banks themselves is suggesting.

When a British Eurosceptic in a woolly hat and suave Italian pro-European industrialists are worrying about the same thing, then it is time to pay attention.

David McWilliams offers independent economic advice through

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